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Waiting game

For three years in a row, Belgian pension funds have started the year with news of disappointing investment returns and discussions regarding the future of the country’s pension industry. Added to this the debate regarding the introduction of the European Pensions Directive hasn’t gone unnoticed, although all agree that the new European legislation will not change things much.
During discussion of the final text of the directive, Belgium showed its disapproval over the proposed investment rules, adding that the legislation did not provide an answer to the problems of social provision. This led the country to abstain in the Council of Ministers vote on the directive’s adoption.
On top of the discussions at European level, what has kept Belgian pension professionals busy during the past few months has been changes in their own pension legislation that will come into force in January next year. The new legal framework, the so-called Vandenbroucke law, sets the pillars for the introduction of sector-wide defined contribution (DC) pensions that the government hopes will cover around two-thirds of the Belgian population.
If we add to this the negative investment returns of –11.92% achieved in 2002 and a recent warning from the Organisation for Economic Cooperation and Development (OECD) calling on Belgium to carry out an urgent further reform of its pension system, it’s easy to understand why the introduction of the Directive and its possible impact on the market is not at the top of the agenda for pension fund sponsors.
The general view is that it is still too early to predict the consequences of the new EU legislation because they still don’t know how their own new legal framework is going to work. Although it’s true that multinational companies based in Belgium are already showing enthusiasm about how the new European pensions ‘passport’ could affect the way they manage their local schemes, for some of the larger Belgian pension funds, the directive will change very little.
“The impact that this will have on pension funds of multinational companies will be significant, but our fund is not in that position,” says Fabian de Bilderling, senior investment officer at the Brussels-based Belgacom pension fund. “It would be something that could affect us if we buy or merge with another company with subsidiaries in other European countries, but at the moment we only provide pensions for Belgian employees.
“Also an important aspect of the directive is that a pension fund will be able to provide services outside their country, but once again this is not our case because we are not a services provider and we only manage the pension assets of our workforce.”
In general, professionals in the market are cautious when it comes to discussing how the new EU legislation will affect their domestic market, primarily because they still don’t know how the Vandenbroucke reform will transform the shape of their industry. “The directive is definitely a move in the right direction for the pensions industry as a whole but we still can’t predict how things are going to change. On the same line we don’t know how our own new legislation will impact our market. We just have to wait and see.”
Taking a wider view on how the directive will change the European pensions market as a whole, de Bilderling comments: “For the time being I don’t see many things changing as a consequence of the directive because there is still a fiscal problem among the different EU countries. Both the transferred of pension rights and the taxation on pension benefits are still a major problem.”
While waiting for the new pension law to come into force Belgian plan sponsors have received good news regarding expected positive returns. According the pension fund association Belgian pension funds could return around 6.5% in 2003 if current trends continue and taking into account the 3.18% returns achieved in the first six months of the year.
This would definitely be good news for pension fund managers that are now concerned about the annual minimum return guarantee of 3.25% that the new legislation requires for the industry-wide pension plans the government is trying to promote. This will no doubt be one of the most discussed topics in the months to come. On the other hand and for the time being, the impact of the directive on the local market will be a less debated topic.

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