The European Pensions Agenda – Towards More Funded Pensions?

1. The European Pensions Agenda – Towards More Funded Pensions? 2012 FIAR Private Pensions Day, Sinaia 21 May 2012

2. Contents • White Paper on Pensions • Revision of the IORP Directive • Financial market regulation • Economic governance

3. Preliminary remarks • Very diverse pension landscape in Europe: • Varying importance of 1st, 2nd and 3rd pillar • DB/DC/hybrid/book reserves • Voluntary/mandatory systems • The EU does not have the power to regulate pension benefits or promises. But it has addressed a range of specific issues: coordination of social security pensions, internal market for supplementary pensions, anti-discrimination • European citizens seem unconcerned by ageing

4. I. EC White Paper on Pensions Published 16 February 2012. Sets the EC pensions agenda for the coming years. Aim: to keep pensions “adequate, safe and sustainable”. Tone of fiscal sustainability and public finances. Sense of urgency. “The stability of the euro depends on this”. The White Paper announces 20 proposals. Three angles: • Balancing time spent in work and retirement: public and labour market reforms (9) • Developing complementary private retirement saving (10) • Publication of the 2012 Ageing Report (last week) and a Pension Adequacy Report (1)

5. I. EC White Paper on Pensions (2) “There is much scope for further development of complementary pension savings opportunities in many Member States” • But: attention to safety, cost effectiveness and shock resistance. • EFRP: pensions funds are long-term investors and contribute to stability on the financial markets. Overall, anti-cyclical behaviour.

6. II. Revision of the IORP Directive “To facilitate economies of scale, risk diversification and innovation and make better use of the internal market” “It can contribute to the sustainability of the Member States’ public finances: revision would strengthen the occupational pension pillar, thereby relieving the pressure on public finances and leading to greater economic efficiency.” (EC Commission)

7. II. Revision of the IORP Directive (2) Romania’s mandatory private pension system outside the scope. But voluntary company or industry schemes would be. EFRP: The Holistic Balance sheet approach (from Solvency II rules for insurers) not suitable for IORPs. Micro and macro economic consequences.

8. III. Financial market regulation Post Lehman Brothers: • PRIPs • Derivatives (EMIR) • MiFID • Alternative Investment Fund Managers Delicate balance between security, transparency and increased costs, ultimately paid by the pension plan member

9. IV. Macro economic governance Annual Growth Survey for 2012 focus on: • “supporting the development of complementary private savings to enhance retirement incomes” • “financial sustainability and adequacy of pension systems” • Align legal and real retirement ages, align retirement age to life expectancy, align men’s and women’s retirement ages Euro area and pension systems: • fiscal consolidation • reduction in public spending in the euro area • returning to sound public finances • a mention of “adequacy” of pension benefits.

10. V. 2012 Ageing Report Pension expenditure projections 2010-2060 Romania: • From 9.8 to 13.5% of GDP spent on public pensions 2010-2060. • Supplementary pensions one way to relieve pressure on public finances. Public pensions to decrease now that private system is in place. Need for people to be aware of these changes and to maintain adequate pension benefits.