Pensions : The EU Agenda

1. Pensions : The EU Agenda Chris VERHAEGEN, Secretary General EFRP APAPR - Romanian-European Pensions Forum 2011 Bucharest, 25 October 2011

2. Introduction 2 About EFRP Leading European voice on workplace pension provision • 26 Member Associations • 15 EU Member States (AT, BE, DE, ES, FI, FR, HU, IE, IT, LU, NL, PT, RO, SE, UK) • 5 non-EU (CH, GG, HR, IS, NO) Our Members manage pension assets of approximately € 3.700 bn for approximately 77 million European citizens Pension institutions as institutional investors provide capital to European companies contributing to smart and sustainable growth

3. Pensions – EU Agenda 3 Contents/1 • White Paper on Pensions: • Pension reforms • Europe 2020 • Promoting complementary pensions • Insolvency of the employer • Portability of pensions • EFRP: taxonomy of pension systems • Review of the IORP Directive: • Call for Advice – EIOPA Response 1: Scope, cross-border, governance • Call for Advice – EIOPA Response 2 : Security • Solvency II, unfit for IORPs: – impact evaluation

4. Pensions – EU Agenda 4 Contents/2 • Mandatory funded second pillar schemes and CfA • EU agenda of financial reform: • AIFM • EMIR • PRIPs • Supervisory Reform

5. Pensions in the EU Agenda/2 5 White Paper on Pensions • End of November 2011: • Expected publication • No overall policy line: • Lack of a comprehensive framework for EU pension policy • Much “business as usual” • Pension reforms: • Financial support for Member States • Reduction of early retirement • Equal treatment w/m

6. Pensions in the EU Agenda/3 6 White Paper on Pensions/2 • Europe 2020: • Support for workers to stay longer on the labour market • Abolishing mandatory retirement ages • Promoting complementary pensions: • Financial support to design cost-effective supplementary pension schemes • Code of good practices for occupational pensions • 3rd pillar pensions initiative (=voluntary individual products) • Portability of pensions: • Modified Portability Directive: expected 2012 • Address tax obstacles

7. Pensions in the EU Agenda/4 7 White Paper on Pensions/3 • Insolvency of the employer: • DC not surveyed • EC intentions not clear yet • EU pension taxonomy (EFRP Proposal): – A clarifying exercise – Mapping EU pensions systems – Designing a comparative table

8. Call for Advice on the IORP Directive – EIOPA Response 1 8 Review of the IORP Directive/1 EFRP welcomed the “wide ranging” approach of the CfA: • EIOPA Response 1: • Scope of the IORP Directive: • IORP Directive to cover all funded work-related schemes 2. Cross-border activity: • Clarification of cross-border activity • Major hurdles (social and labour law, taxation) • Acknowledgement that cross-border activity is not the ultimate aim for most IORPs • Governance: • Outsourcing (functions and activities) • Fit and proper • Internal control + internal audit

9. Call for Advice on the IORP Directive – EIOPA Response 2 9 Review of the IORP Directive/2 • EIOPA Response 2: security of benefits • EC Proposal: apply Solvency II and adapt it to IORPs • EFRP Response: Solvency II is unfit for IORPs WHY? : • Plan sponsor generally backs up pension commitments • Not-for-profit-institutions • Governance structure involves the plan member • IORPs are specialised in operating pension schemes with a workplace connection

10. Call for Advice on the IORP Directive – EIOPA Response 2 10 Review of the IORP Directive/3 • Macro-economic impact assessment of Solvency II (type) rules applied to IORPs: • threaten financial stability • impact on systemic risk • reduce economic growth, which is not in line with the Lisbon agenda

11. Call for Advice on the IORP Directive – EIOPA Response 2 11 Review of the IORP Directive/4 • Micro-economic impact assessment of Solvency II (type) rules applied to IORPs: • Influence on asset prices • Reduction of risk assets (inappropriate treatment of equity risk) • Solv II quantitative rules do not consider modern asset allocation models: • increase the cost for employers – lower contributions – lower pensions • accelerate trend of companies closing DB schemes and risk shifting to individuals

12. Security for IORPs: EFRP views 12 Conclusions/1 • Risk-based supervision for IORPs: • EFRP supports the objective of secure work-related pensions 2. Security: • is more than just capital requirements • comes also through: • Governance structure of the IORP • Risk-sharing mechanisms • Prudent person investment rules • Advanced techniques in risk-management

13. Security for IORPs: EFRP views/2 13 Conclusions/2 • Solvency II is not the appropriate starting point for a risk-based supervisory system for IORPs • Impact assessment need to look to micro- and macro-economic consequences ! 5. EFRP will propose alternative security regime for IORPs

14. CEE Member States 14 Mandatory funded 2nd pillar schemes - CfA • Managed by private institutions; • Contributions carved out of the existing public pension systems; • Mandatory participation; Extending the Scope of IORP Directive to CEE systems? • Risk to scale back reforms and bring mandatory system back into state - unfunded – pillar?

15. Broader financial reform - Regulatory 15 Key legislative initiatives/1 • Alternative Investment Fund Managers Directive (AIFM) (2011/61/EU; 1 July 2011): Common rules for hedge funds and private equity firms to get access to EU markets • EFRP concerns: • Additional costs of complying with regulation passed on to investors (pension funds)? • Limiting investment opportunities for IORPs • Overlap with MiFID and UCITS Status: ESMA issued its advice for Level 2 measure implementing the AIFM Directive on 16 September 2011

16. Broader financial reform – Regulatory/2 16 Key legislative initiatives/2 • European Market Infrastructure Regulation (EMIR): • Optional Central Counter Party clearing (3+2 years) for IORPs and sim; • CCP to take into account the creditworthiness of market participants in setting margin requirements • CCP to offer segregated accounts to facilitate counterparty risk management Status: - Ecofin Council: common position - 4 October 2011 - European Parliament: expected Plenary vote - end 2011 • Packaged Retail Investment Products (PRIPs): • Horizontal approach to product disclosure and selling practices • Certain pension schemes may be replaced by PRIPs from an economic point of view • Pensions (and annuities) out of the scope so far Status: Legislative proposal expected Q1 - 2012

17. Broader financial reform - Supervisory 17 European system of financial supervision/1 • European Systemic Risk Board • Responsible for the macro-prudential oversight of the financial system • Identify and prioritise systemic risks • Issue warnings and recommendations • European Supervisory Authorities • European Securities and Markets Authority (ESMA) • European Banking Authority (EBA) • European Insurance and Occupational Pensions Authority (EIOPA)

18. Broader financial reform – Supervisory/2 18 European system of financial supervision/2 • EIOPA: • Role: • Advice on implementing measures • Issue regulatory technical standards • Issue guidelines and recommendations • Stakeholders Groups • Insurance and Re-insurance (IRSG) • Occupational Pensions (OPSG) • Deliver opinions to EIOPA • Debate on industry-relevant issues • OPSG Opinion on EIOPA response- CfA on the IORP Review: 25 Nov 2011

19. 19 Contacts Thank you! European Federation for Retirement Provision Koningsstraat 97 Rue Royale 1000 Brussels Tel.: +32 2 289 14 14 Fax: +32 2 289 14 15 efrp@efrp.eu www.efrp.eu