Examples of 6 situations in which looking beyond national borders can solve problems for pension funds.“A British DB pension fund with a long and proud tradition finds itself under pressure by new regulations, accountancy rules and new life expectancy figures. It believes it can fulfill its pension promises, but the Pension Protection Fund keeps increasing its premium and that has the sponsor worrying and wondering whether to close the DB plan…”
“A Swedish pension fund has outsourced its investments to a Swedish consultant. The results are heavily disappointing, but there’s no guarantee that another consultant would do better and the fund is too small to handle its own investments…”
“An Italian pension fund would like to diversify into real estate, but Italian law demands a “prudential” write-off at purchase, so large that the investment will not show a profit until it is sold again. Meanwhile, the fund has to publish its results every month…”
“A Dutch pension fund is deemed to be badly financed by the state supervisor. The supervisor demands a hefty payment from the sponsor. The sponsor believes the fund is well financed and the deficit is caused only by an ongoing crisis in financial markets. If pushed, it will close the plan…”
“Social partners in Belgium want to set up a new pension fund. The law demands a return guarantee, which makes it impossible to keep the fund in their own hands and drives it towards the Belgian banks and insurance companies who, in their view offer only small returns and high cost…”
“A Lithuanian second pillar pension fund has worked hard to build market share. It is still small, but making progress. Now the government starts contemplating to ban second pillar pensions…”
Knowledge of the opportunities in European legislation and regulation offers solutions
These cases are hypothetical, but they are based on real situations and real legislation. They have something else in common: looking beyond national borders can solve these problems.
European regulation has made it possible for pension funds to serve one national market from another. In Ireland, the British fund can keep its structure, keep its promises and its tradition, but there’s no guarantee fund.
There is nothing to stop the Swedish fund from outsourcing its investments to a non-Swedish party. Fiduciary management (some parties call it implemented investing) will give it access to better risk control and a better return at lower cost.
The Italian pension fund can pool its investments in another EU country. Italian law does not require the write-off if it invests in investment structures that also invest in real estate.
Dutch regulation is heavily rule-based. Luxembourg regulation is heavily principle-based. By moving to Luxembourg, the Dutch pension fund will be able to make its story count.
The Belgian return guarantee can only be demanded from Belgian funds. By seeking cooperation with a Dutch fund, social partners can realize the structure they had in mind and better pensions for its participants.
While the Lithuanian government may ban Lithuanian second pillar funds, it cannot ban second pillar pensions. The Lithuanian fund needs to establish in another EU country to continue to work as before.
Knowledge of the opportunities in European legislation and regulation offers solutions. Knowing what’s happening in the EU has become necessary for pension fund professionals. New rules create opportunities and options.
The way to know about them is ERE, the course on European Retirement Education.
Participants in an ERE course learn what European legislation means for them an their pension institution. They will come back not just with solutions, but also with the network and the know-how to put them in practice.
ERE is composed especially for:
pension fund governance
public affair employees working for pension funds
employees of branch organisations of pension institutions
employees of pension lobby organisations
specialized European government officials
The first course will take place on September 21, 22, 23 in Brussels
ERE Programme September 2009 _3