With the burden of regulation growing and problems around issues like Solvency II, Martin Delaney asks how pension associations are tackling these issues on behalf of members
Questions have long been raised over the value of belonging to an association, whether it is for employers or a trade union for workers. Can the collective be of more value than the individual? Put simply, can we prove the old maxim of united we stand, divided we fall?
Pension fund associations have existed in Europe since before the Second World War, but have come to the fore in recent years with complaints rising about the increasing regulatory burden and issues such as Solvency II proving problematic.
Key to this is the relation between the funds and their associations and further between the associations and the other organisations that work at the supranational level. For Chris Verhaegen, (pictured right) secretary general of the European Federation of Retirement Provision (EFRP) the whole process is a two-way track.
"There is one track into Brussels and another into the national capitals. The EFRP provides information to members and, of course, we gain information from them that we then convey to Brussels. It is key for us to have knowledge of our members' operations - how pension systems work throughout Europe - so that we can then make that understood to the parliamentarians. There is often a lot of education that we have to do. In my experience, a lot of people do not understand what the operational differences are between pension funds and insurers, for example."
Keeping MEPs informed
Verhaegen's point is a simple one: given the range and variety of pension schemes across Europe, an organisation such as hers (see box) can act as a provider of shorthand information for MEPs, rather than each individual national association approaching the MEPs itself.
It is a role backed by Joanne Segars, (pictured left) chief executive of the National Association of Pension Funds (NAPF), the UK's main pension fund association. The NAPF has a seat on the board of the EFRP and is closely involved with its work. "The NAPF has been involved from the outset," she explains. "The EFRP's role to us is very important, given some of the issues that Europe is dealing with - such as Solvency II. We support her [Verhaegen] on lobbying our own MEPs."
Segars says most of her organisation's work at the European level is done through EFRP. "European institutions like to speak to other European institutions," she says. She adds that in the UK while NAPF's members look to their association to carry out the bulk of the lobbying work, it does encourage them to have their own discussions with MPs and ministers. "It helps support what we're saying if we have additional support from asset managers and pension funds," she explains, "It means we can be mutually supportive."
Advantages of one voice
Leny van der Heiden of the Dutch Association of Industry-wide Pension Funds (VB), is familiar with working within such a structure. "Three of our biggest members have their own lobbyist in Brussels, or wish to arrange this soon," she says. "But they also see the advantages of ‘speaking with one mouth'. As a result of the creation of uitvoeringsorganisaties [pension administration entities], these members have interests that can't be looked after by VB. However, Brussels is no issue for most of our members."
For Van der Heiden, the best way to represent the association's members is by a "vast co-operation between European pension fund associations. Another method is to provide information to the member funds as well as to ‘society' - how do pension funds work, what to expect from them and what not, how do they invest and what is the added value of that?' Furthermore, lobbying at national government level and in Brussels is very important."
The important factor is that pension funds have a voice both at the national and supranational level. Roland van den Brink, (pictured right) as a member of the executive board at Mn Services - the Netherland's third-largest manager of pension assets - and a former president of the Dutch Actuarial Society, has experience both of being a member of various associations and of running one.
He recognises that the level of maturity of pension funds differs from country to country. "For example, France or Italy have a different approach regarding pensions, and fewer funds," he says. "So do they have a natural way of having a well developed branch organisation? If a country doesn't have pension funds, then it is difficult to say why they should have a pension fund representative organisation. What is common for the Dutch and the British is maybe not that common for other countries."
But for those countries with well-developed pensions systems there are several ways they can have a voice, says Van den Brink. The mechanisms in Brussels will work with lobby organisations to ensure that these pension funds feel they are best represented. When there is no industry voice within a country, then the representation is conducted by that nation's government.
"What the branch organisations do is lobbying and that is a wholly different activity."
For Fabian de Bilderling and Lut Sommerijns, of ABIP-BVPI, the Belgian Pension Fund Association, it is also important to have a voice at the European level. "The workload of European dossiers is, however, diffi-cult to quantify," they say. "In general, we are active in two supranational associations that are doing the lobbying work. We also keep, as much as possible, some contacts and can do our own lobbing at European level when an issue is particularly relevant. The decision about the time to approach the issues is taken at our executive committee."
VB's Van der Heiden agrees that having a voice in Europe can be critical. "Brussels doesn't care about Dutch pension problems," she says. "For that reason, we are always trying to find other countries or sectors that share our interests. The contacts are created via the European associations EFRP and AEIP [The European Association of Paritarian Institutions]. We have to set priorities according to the interests of our Dutch members."
Frans Prins, the director of the Dutch Association of Company Pension Funds OPF, says he works with his colleagues VB and UvB, the Dutch Union of Occupational Pension Funds, to ensure their voice is heard at both the European Parliament and the European Commission. "Additionally, the EFRP is the lobbyist for all supplementary pension providers in Europe," he adds.
The Stichting voor Ondernemingspensioenfondsen (OPF) is the leading voice of corporate pension provisions in the Netherlands, promoting the interests of about 350 Dutch company pension funds, Prins says. His association represents about 2m participants (active employees, ex-employees with paid-up pension entitlements and pensioners), and OPF-affiliated funds (or members) hold combined assets of about €200bn.
One pension fund association that Van den Brink believes we can learn from is the Australian one. "In general one should look around the world at the different models," he says. "The Australian pension funds have organised themselves, among other forms, via the Centre for Investor Education (CIE).
Key to the success of of CIE, Van den Brink believes, is the independence this model grants the pension funds. "They pay their own wa, they attract extremely good speakers and it is organised very professionally. This means they have removed all sense of commercial interest, and allows board members to travel the world to get a glimpse of what is happening, whether that is investment, administration or custody.
"Many people in the investment world think this is the best organisational process they have seen. It may involve going to a lot of conferences, but the Australian model does seem to be one of the best."
Two sides to lobbying
Information gathering and education are two indispensable reasons for an association to exist. Lobbying, in this instance, can work in both directions, working to influence MPs or MEPs as well as promoting certain best practices among its members, as well as promoting certain best practices among its members, notes Van den Brink.
As such, many pension fund associations find themselves running almost as a separate commercial entity - not just as a forum or lobbying organisation for its members. Most survive through subscriptions from members. But, as Segars at the NAPF says, a lot of activity is also spent organising and running training conferences for its members.
"We have our investment conference, our annual conference and our trustees' conference," she explains. "There are also the hot-topic seminars and training. We are perhaps unusual in that there is more focus on the business aspect."
However, as she notes, the NAPF is one of the larger trade associations with 1,200 pension schemes, which themselves have over 15m members and assets of around £800bn (€1trn). Additional NAPF members also include more than 400 firms that provide a range of services to the pensions community. Segars estimates that, in total, her members provide some 50% of the overall revenue, with the various conferences and training sessions making up the rest.
"We're not a deposit organisation," she continues, "but we do have to be profitable and make sure that ends meet. We service our members properly and the conferences we run are a good platform to tell members what we're doing. They're also a great networking opportunity, not just for pension scheme members, but also for asset managers, actuaries and lawyers. It is also a good opportunity for them to promote their services."
This business model differs from that of ABIP-BVPI. De Bilderling and Sommerijns say: "Subscriptions from our effective and adherent members represent almost the only source of our revenue." They point out that adherent members are the service providers of pension funds.
Indeed, other funds around Europe usually gain most of their revenue purely from members. For example, VB's Van der Heiden says members pay a contribution based on their size and investments - a contribution structure that is common to most associations.
The EFRP also receives the bulk of its income from member subscriptions. "The business is made up of contributions from our members," Verhaegen explains. "We also have member supporters from the asset management companies as well as pension fund consultancies. They're all part of the pension fund community, so we think it is good to have relations with them and the possibility to give our support to them."
The non-pension fund members represent approximately 15% of overall income. The association does not run any training programmes. "That is done at the national level," Verhaegen points out. "We do have one conference, but it is not an income source. We try to live on our contributions."
Issues common across Europe
The issues they face are common across Europe: Solvency II and IAS19 are concerns that crop up time and time again.
"The regulation burden is also growing," adds Hanspeter Konrad, director of ASIP, the Swiss Pension Fund Association. "We are seeing increasing complexity and changes to the technical parameters in the pension fund area, such as how you would define interest rates and the calculation of relevant parameters."
His organisation is also a member of the EFRP. "We discus the Solvency II regulations with it on a regular basis," he says.
For OPF's Prins there are three main issues facing pension funds in the Netherlands. He lists them as: "the search for better communication between the pension fund on the one hand and employees and former employees on the other, regarding issues as the content of the pension agreement, indexation and the accrued pension benefit; the elimination of legal obstacles which prevent the co-operation between company pension funds; and implementing the current requirements from the Pension Act, Pension Fund Governance and the improvement of the education and knowledge of pension fund trustees."
Segars at the NAPF also cites regulatory pressures as a concern. "From a European perspective we have one of the most highly regulated sectors in Europe," she says. "There are also the growing costs of regulation and that manifests itself in both the defined benefit and defined contributions sectors. We are involved in dealing with some of these issues and what they mean for scheme sponsors."
A third issue for Segars is the regulatory reforms the UK government is pushing through. "There doesn't seem to have been a period in the last 20 years when it hasn't always been thus. I wouldn't say the burden has been onerous, but we have certainly been busy."
Ultimately, that is exactly how the association should be - taking on the role of the representative voice to ensure individual pension funds' concerns are not overlooked. For Segars, this can be either at the national or European level and for Verhaegen this involves taking another perspective altogether.
Associationscan also serve as a talking shop - allowing pension funds to exchange information such as updating each other on best practices. That's only partly the point, says Mn Services' Van den Brink. "It allows you to find out how are things in other countries or other pension funds and how we can learn from them. By meeting regularly you can influence the thinking of the people around you."