Europe Takes Pension Concerns to Government

(March 26, 2012) — Some of the largest organisations representing employees, staff, and pension funds are to air their concerns over potential new Europe-wide regulation they claim could de-rail the retirement benefit system to United Kingdom Parliament today.

The European Federation for Retirement Provision (EFRP) is to be joined by the UK’s National Association of Pension Funds (NAPF), Confederation of British Industry (CBI), Trades Union Congress (TUC) and the Association of British Insurers (ABI), presenting at the House of Commons this afternoon to highlight their worries about regulation.

There are currently two main European Union policy initiatives taking place that involve pensions: the White Paper on Pensions and the proposal to revise the Institutions for occupational retirement provision (IORP) Directive.

Although there is a close link between these two initiatives, they follow two separate tracks – the main sticking point is the current stance that pension funds may be forced to adhere to Solvency II, a capital-based regulation that was originally intended for insurance companies.

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Earlier this month, European Commissioner Michel Barnier sought to reassure pension funds that they would not be made to implement Solvency II in a ‘copy and paste’ method from the insurance industry guidelines.

However, accounting firm Deloitte published a survey today showing the average FTSE100 company would see its pension liabilities rise between £1 billion to £2.5 billion, should the Solvency II framework be enforced on retirement schemes.

The EFRP published a paper on its concerns ahead of today’s meeting. It said the group supported most of the initiatives in the white paper, but was very concerned about the revision of the IORP Directive.

It said: “In the White Paper, the European Commission acknowledges the importance of supplementary pension schemes. Yet, in its call for Advice to the European Insurance and Occupational Pensions Authority (EIOPA), which preceded the revision process of the IORP Directive, the European Commission proposes harmonised capital requirements for work-based pension funds, with a strong focus on a high level of short-term security. This proposal could significantly harm the supply of future occupational pensions.”

The EFRP said it had invited the European Commission to align the IORP revision and the white paper on Pensions and to re-think the entire revision process with a view to pursuing the security of pensions from a “holistic” or all-encompassing approach, focusing on with adequacy and sustainability.

The organisations will meet the Work and Pensions Committee of the House of Commons on EU pension policy at 4.30pm in London today.

(March 26, 2012) — The International Monetary Fund (IMF) has urged Switzerland to reform its pensions system to ensure its ageing population is adequately catered for in the near-future.

The tiny European nation must tackle its ageing population – an issue that other countries across the continent have been forced to address – and align its systems to cope with a larger number of retired people in the short term, the IMF reported in its latest study on Switzerland.

The report said: “Measures to tackle the financial consequences of population aging should gain center stage and include additional ‘fiscal rules’.”

The IMF said that if policies were not changed, ‘the increase in aging-related expenditure will already start to bite in earnest around the end of this decade. Consequently, time for reform preparation and implementation is running out quickly’.

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The report comes after many European nations in a less fiscally stable position than Switzerland have been forced to address rising pensions costs.

Even before Italy was caught up in the whirl of the sovereign debt crisis last summer, it had already begun to implement changes to make its pension system more affordable and sustainable. France has experienced wide-scale strikes over attempted increases to raise the retirement age in recent years and the United Kingdom’s Chancellor last week announced that the government would look at linking a raise in its retirement age with improving longevity.

The IMF’s report on Switzerland said this last point was the most important for the country to consider and it should look at nations where this had already successfully taken place.

“Such a rule would reduce the need for repeated and often difficult reform discussions,” the report said.

Equalisation of the male and female retirement age and pension indexation to inflation only (rather than both inflation and wages) could be considered, the IMF stated.

Switzerland has been mostly isolated from the most recent financial crisis and its currency has seen massive appreciation against the euro and dollar as a result. The Government has taken measures to ensure the Swiss franc does not move totally out of kilter with other base currencies. The IMF said this was appropriate, but not endlessly sustainable.

It said: “Once economic conditions normalize, a return to a freely floating currency would be desirable. While the exchange rate floor has been successful, once an economic recovery gets under way and deflation risks recede the SNB should move back to a free float.”

Last month, aiCIO revealed that Ireland had asked the Organisation for Economic Co-operation and Development (OECD) to review its pensions system. The government said it wanted to take a fresh view of the country’s pension sector in light of changing economic and demographic circumstances.