The European Commission has reinforced its message that pension funds in Europe are the key to financing long-term growth in the region.
Commenting on the release of a package of measures that aims to identify sources of long-term financing and sources of support for economic growth in Europe, Michel Barnier, commissioner for internal market and services, said in a statement: “All European societies face a combined challenge of provision for retirement against a backdrop of an aging population, and of investing long term to create growth. Occupational pensions are at the junction of these two challenges.”
Mr. Barnier cited the e2.5 trillion ($3.4 trillion) in European pension assets that could be put to use to foster long-term growth.
The measures outlined by Mr. Barnier focused on investment needs in Europe across infrastructure, technology and human capital.
The proposed changes in the Institutions for Occupational Retirement Provisions Directive are intended to contribute more to long-term investment, according to a statement on the European Commission website. They are designed to ensure pension fund participants are protected against risks, to remove obstacles to cross-border funds and to reinforce the capacity of occupational pension funds to invest in financial assets and finance growth in the economy.
To encourage funds to invest long term in growth, environment and employment-enhancing economic activities, the proposal “would modernize investment rules to allow occupational pension funds to invest in financial assets with a long-term economic profile,” according to an extensive frequently asked questions file published by the commission.
“The proposal would change the existing provisions on investment restrictions to make sure occupational pension funds remained free to invest in infrastructure, unrated loans, etc., thus ensuring that investments, in particular with a long-term profile, should not be restricted if the restriction is not justified on prudential grounds,” according to the FAQ.
It had been hoped the commission would remove obstacles that stand in the way of creating cross-border pension funds. In documents leaked over the past month, it seemed commissioners had removed one particular barrier — a requirement that cross-border plans had to be fully funded at all times. Some executives in the U.K. pension industry said removing that requirement would create scale for multinational companies, potentially improving governance and leading to bigger asset allocations to money managers.
However, the published proposals do not remove the requirement.
In an e-mailed comment to Pensions & Investments, a commission spokesman said: “There are no changes for cross-border funds in new text. Status quo remains. That means that cross-border pension funds need to be fully funded at all times. Whereas national pension funds don't have to be.
“(The) reason is twofold: the revision of IORP is not about funding, so it makes little sense to deal just with one element of funding. And although we are not asking pension funds to increase their funding at this stage, we don't think it makes sense either to encourage them to weaken existing funding requirements: (it is) not in line with the general movement to improve prudential soundness.”