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

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 € bn for approximately 77 million European citizens Pension institutions as institutional investors provide capital to European companies contributing to smart and sustainable growth About EFRP Introduction 2

1.White Paper on Pensions: Pension reforms Europe 2020 Promoting complementary pensions Insolvency of the employer Portability of pensions EFRP: taxonomy of pension systems 2.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 Contents/1 Pensions – EU Agenda 3

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

1.End of November 2011: –Expected publication 2.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 White Paper on Pensions Pensions in the EU Agenda/2 5

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 Pensions in the EU Agenda/3 6

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

EFRP welcomed the “wide ranging” approach of the CfA: EIOPA Response 1: 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 3.Governance: –Outsourcing (functions and activities) –Fit and proper –Internal control + internal audit Review of the IORP Directive/1 Call for Advice on the IORP Directive – EIOPA Response 1 8

EIOPA Response 2: security of benefits 1.EC Proposal: apply Solvency II and adapt it to IORPs 2.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 Call for Advice on the IORP Directive – EIOPA Response 2 Review of the IORP Directive/2 9

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 Review of the IORP Directive/3 Call for Advice on the IORP Directive – EIOPA Response 2 10

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 Call for Advice on the IORP Directive – EIOPA Response 2 Review of the IORP Directive/4 11

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 Conclusions/1 Security for IORPs: EFRP views 12

3.Solvency II is not the appropriate starting point for a risk-based supervisory system for IORPs 4.Impact assessment need to look to micro- and macro-economic consequences ! 5.EFRP will propose alternative security regime for IORPs Conclusions/2 Security for IORPs: EFRP views/2 13

1.Managed by private institutions; 2.Contributions carved out of the existing public pension systems; 3.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? Mandatory funded 2nd pillar schemes - CfA CEE Member States 14

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 Broader financial reform - Regulatory Key legislative initiatives/1 15

2.European Market Infrastructure Regulation (EMIR): 1.Optional Central Counter Party clearing (3+2 years) for IORPs and sim; 2.CCP to take into account the creditworthiness of market participants in setting margin requirements 3.CCP to offer segregated accounts to facilitate counterparty risk management Status: - Ecofin Council: common position - 4 October European Parliament: expected Plenary vote - end 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 Q Broader financial reform – Regulatory/2 Key legislative initiatives/2 16

European system of financial supervision/1 1.European Systemic Risk Board –Responsible for the macro-prudential oversight of the financial system –Identify and prioritise systemic risks –Issue warnings and recommendations 2.European Supervisory Authorities –European Securities and Markets Authority (ESMA) –European Banking Authority (EBA) –European Insurance and Occupational Pensions Authority (EIOPA) Broader financial reform - Supervisory 17

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 Broader financial reform – Supervisory/2 18

Contacts Thank you! European Federation for Retirement Provision Koningsstraat 97 Rue Royale 1000 Brussels Tel.: Fax: