What New Cost is Being Heaped on European Investors?

Towers Watson has warned that pension and insurance investors will be asked to fund the running costs of Europe’s regulator under new plans unveiled by EIOPA.

(November 4, 2013) — Pension and insurance investors are to face yet another expense: the European body of pension supervisors wants to push through a new fee to pay for its future operations.

Under plans being considered by the European Parliament, the European Parliament’s Committee on Economic and Monetary Affairs has recommended granting the European Insurance and Occupational Pensions Authority (EIOPA) an independent budget, paid for by “market participants”.

“‘Market participants’ is code for pension schemes and insurance companies, while ‘the Union budget’ means taxpayers,” warned Dave Roberts, a senior consultant at Towers Watson.

“In the case of defined benefit schemes, additional costs would have to be met by the employers who are responsible for ensuring that the scheme has enough money left to pay the benefits that are due. In most defined contribution schemes, the cost would ultimately come out of pension savers’ retirement pots.”

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While the sums involved are unlikely to be large, it flies in the face of several government’s pledges to make defined benefit schemes less burdensome for employers, Roberts continued. It also defies plans to cap charges in defined contribution schemes, he added.

The push for an industry-funded regulator has been on the cards for some time. Gabriel Bernardino, chairman of EIOPA, called for such a system in May this year, asking for what he called “partial financing” through a levy on the industry.

EIOPA’s budget for this year is €18.8 million, 60% of which currently comes from national supervisors (and so, indirectly, from the pension schemes and financial service companies who pay levies to them).

“An expanding workload for EIOPA is likely to mean an expanding budget, and ECON’s proposals would make it easier to get pension schemes and insurers to pay for this,” Roberts continued.

“Even if the idea was only to cut out the middlemen and make pension schemes pay EIOPA directly, it would still give a European regulator a direct claim on pension fund assets for the first time and open the door to higher payments in future.”

(November 4, 2013) – ABP has concluded its long-running skirmish with international banks over US mortgage products, after finally settling with Credit Suisse and Morgan Stanley in the late hours of last week.

The Dutch pensions giant has already reached a settlement with JP Morgan, Goldman Sachs, and Deutsche Bank, all for undisclosed sums.

This final settlement with Credit Suisse and Morgan Stanley brings to a close its lengthy struggle over its mortgage investments, which it alleged the banks knew were worth less money and much riskier than the purchase price stated.

All of the banks have denied knowing the investments were worth less than advertised, and denied provided false and misleading information when selling them.

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ABP has around €6.5 billion in domestic mortgage securities, although most of that is in legacy funds from the days when ABP itself provided mortgages.

The pension fund also successfully challenged drugs manufacturer Merck earlier this year, leading it to agree a $215 million payment to five investors in order to resolve a five-year-old battle.

That case centred on the delayed results of a clinical test, which investors claimed lowered the price of the company stock. Merck has denied and continues to deny the claims made by the plaintiffs.

The Netherlands’ largest pension fund has endured a challenging 12 months, being one of many Dutch funds facing the possibility of having to cut pensions in payment in 2014 due to lower returns and rising liabilities.

Its coverage ratio is now around 103%, much improved from the 97% recorded in June, but below the industry requirement of 107%.

Chairman Henk Brouwer warned on local radio station BNR last month that the “danger of cuts” had still not been removed.