As part of a review of rules governing the occupational retirement space, members of the European Parliament have proposed banning caps which limit how much a pension fund can invest outside its home country (Yves Herman/Reuters)
Good morning. In AOX we often talk about pensions nationalism – that is governments encouraging their pension funds to invest in their national economies – but this week we’ll look at the opposite.
The European Parliament, one of the legislative bodies of the European Union, has been reviewing the IORP II directive, which governs occupational retirement provision as part of the process of updating the rules.
For context the European IORP - or institutions for occupational retirement provision - sector is about $3.25tn in size and includes both defined benefit and defined contribution funds.
Yesterday the parliament agreed on the position it will use as the basis for negotiations with the European Council (the body composed of the heads of state of each EU member state).
One measure that had cross-party support was a proposal to effectively ban any EU member state from adopting an investment cap for its pension funds.
This is in part aimed at countries that force their pension schemes to invest a certain proportion of their assets in the local economy. But it would also remove caps aimed at particular asset classes. For example Germany, France, Finland and Sweden all place caps on unlisted assets.
German centre-left MEP Damian Boeselager, who is the lead rapporteur for the review, also proposed a mandatory 2 per cent allocation towards venture capital as part of the package in a bid to foster growth within the EU but this didn’t meet with the same level of support and isn’t being brought forward.
Dutch MEP Dirk Gotink, a member of the parliament’s committee on economic and monetary affairs who is shadowing the review for the centre-right European People’s Party, said: “We need to get rid of all these caps. In healthy capital markets we shouldn’t have any restrictions.
“If we really want to give options to investors and really want to deepen capital markets then we should not have these speed limits.
“It would be a good thing if Dutch pension funds invest in Germany or Swedish pension funds invest in Poland.
“In my view they are unreasonable, not good for pensioners and not good for the development of the European financial market.”
But he said that individual member states would not support giving up their ability to impose such caps so he predicted “a fight” with the European Council.
PensionsEurope, the trade body, said any reform should “reinforce a coherent, risk-based framework while [...] preserving member states’ discretion, avoiding unnecessary rigidity and ensuring that the investment capacity of IORPs is not inadvertently constrained”.
