Across Europe, fit-for-purpose pension schemes are at risk of becoming bogged down by cumbersome European Union regulations, argues Louise Farrand
The road to hell is paved with good intentions. Rarely does the old saying ring as true as when confronted with European Union regulation.
Fundamentally, all of Europe’s regulators are concerned with protecting savers, as well as ensuring that pension schemes and the companies that serve them are fit for purpose.
For a start, Europeans are living longer. A recent study by the European Commission found life expectancy is steadily increasing in the EU, reaching 79.2 years in 2012 – an increase of 5.1 years since 1990.
Clearly this poses challenges for state pension provision, with the result that countries are encouraging members to build up private, or ‘second pillar’, retirement savings.
As a result, more money is flooding into private pension schemes.
The UK is a good example of this trend: more than 5.5 million people had been auto-enrolled into a workplace pension scheme as of October 2015.
Our clients are already dealing with increased pension costs”
As money is being invested on savers’ behalf, clearly they must be protected as much as possible from adverse events, from financial crises to corporate and scheme insolvencies.
However, national governments across Europe take different views on how savers are best protected. So, at times, regulation has hit cultural roadblocks, leading to delays. With so many stakeholders with different visions trying to reach a compromise, the end result has been complexity.
A regulatory priority is to make cross-border pension schemes a reality by removing prudential barriers. But the sheer volume and intricacy of regulation that is looming worries companies and trustees alike.
UK businesses are very much aware – and concerned – about what is in train. Working with partners in Europe to avoid further costs as a result of wider policy changes is a priority for boardroom leaders, according to a study by global consultancy Mercer.
The EU should be doing all it can to encourage companies to strengthen pension provision”
In its survey of 160 businesses, concerns about new European regulation came second to changes to tax relief.
Frank Oldham, a senior partner and global head of defined benefit risk at Mercer, says: “Our clients are already dealing with increased pension costs arising from an ageing population and high deficit.
A blanket approach to pension regulation will further undermine enthusiasm for top-class pension provision in this country.
“The EU should be doing all it can to encourage companies to strengthen pension provision and to improve employees’ savings habits,” Oldham says.
How can trustees keep up?
There is a huge amount of discussion and debate going on across Europe, as regulators hone in on member protection. As a result, the landscape is changing fast.
Jerry Moriarty, chair of industry body Pensions Europe’s DC standing committee, suggests: “Follow Pensions Europe! Trustees are so caught up in what they’re doing on a day-to-day basis that they’re not really focused on what’s going to happen in two to three years’ time, so it’s difficult to engage them on it.
“The reality is, if you’re a member of an association that’s there to look after your interests, you just have to hope they are doing that and asking the questions.”
“I think the only thing trustees can do at the moment is keep an eye,” says Dalriada Trustees’ Kennett.
“There’s nothing particularly massively fundamental, it’s not like we’re going to have freedom and choice type changes with only a month to implement them.
“There’s going to be time in which we can implement it. The majority of it we should already be doing, the internal controls, it’s going to be how this stuff is implemented.
“At the moment I think we’re trying to run before we can walk. Keep an eye on what’s going on until the European Commission passes the legislation and then really for the UK, the devil is in the detail – the devil is in how regulators can take that European regulation and implement it in the UK.”
It’s a long and certainly winding road ahead. The important thing to keep bearing in mind, when gritting your teeth over the sheer complexity of it all, is that the regulators, just like trustees, are seeking to preserve savers’ money and protect their best interests.