Europe needs a consistent private pension policy. From country to country, practices vary enormously, from advance-funding in the United Kingdom to book-reserving in Germany to the AGIRC and ARRCO second-tier pay-as-you-go systems in France. But nearly 85% of all pension benefits still are paid out through state pension systems.
Investment regulations also are all over the lot, from prudent-investor approaches in Britain, the Netherlands and Ireland, to more restrictive limits in Germany and Denmark.
Mario Monti, the European Union's former internal markets commissioner, has taken a huge step forward through a communication issued in May, in a prelude to providing a binding directive for EU countries. His aim was to flesh out the EU's goal of freedom of mobility of capital, labor and services. It remains to be seen what his successor, Frits Bolkestein, will do, but signs are that he will pick up the ball.
Now, Koen De Ryck, managing director of Pragma Consulting NV, Brussels, and an impassioned advocate of a coherent European pension policy, would like to advance the process still further.
Based on his own research and work done by the Paris-based Organization for Economic Co-operation and Development, Mr. De Ryck has written the "The 10 Commandments" of pension regulation.
Here's the message Mr. De Ryck has for the European Commission and, indeed, supporters of funded pension systems throughout Europe:
1) Separation of pension assets from the sponsor is required.
2) Governance of pension funds must avoid conflicts of interests. Executive and management duties must be separated from supervisory duties; so should money management and custody or trading activities.
3) Trustees and their internal or external service providers must be fully responsible and accountable for discharging their fiduciary obligations, and could face sanctions for not living up their duties.
4) Pension funds and service providers must be licensed to ensure they are fit to do their jobs.
5) Minimum funding requirements are needed that are flexible and rely on sound actuarial methodology and assumptions.
6) Freedom of investment must be based on prudent-investor principles. They must be fully applied -- with no investment restrictions except on buying the plan sponsor's securities -- and must be verifiable.
7) Risk control and risk management principles must be used; pension funds should be evaluated on the basis of risk-adjusted returns.
8) Transparency, disclosure and access to information for plan participants, beneficiaries and the regulator must exist for all types of plans. Tougher disclosure criteria should apply to defined contribution plans where participants bear the investment risk.
9) Adequate and effective supervision that is only in the interests of participants and beneficiaries and where the regulator is subject to high professional standards is needed.
10) Fair competition for all providers of equivalent products or services, with a duty to be cost effective, should be required.
Now there's a list of requirements to lead European pension funds into the Promised Land. Let's hope European voters don't pass the euro to future generations by worshipping the golden calf of pay-as-you-go schemes.