Monday, July 31, 2006

Italian pensions [IT]

epn has an interesting article about the occupational pensions situation in Italy, another laggard country. Fortunately, there is an Association for the development of the market in pension funds!

Saturday, July 29, 2006

FSAP transposition database

(IPE) The EU Commission has preëmpted our plans by making available a database of member state legislation transposing Financial Services Action Plan (FSAP) directives (see new link in the sidebar). While this looks like a very useful tool indeed, providing original documents and linking to their original location, it remains to be seen how well the database is being kept up to date. The recently enacted Belgian legislation for instance does not show up in the database. It seems that country notification triggers an update. Also not included is EEA transposition legislation.

Rising retirement age north & south [DK] [GR]

The political debate about the sustainability of static retirement age in the face of rising life expectancy in European countries is beginning to bear fruit. While Alpha Bank of Greece expects (according to this article in Handelsblatt) that the retirement age for recent job starters will have to rise to 75 from the current average of about 60, the local politicians apparently do not grasp the seriousness of the situation quite yet.

Meanwhile, up north in Denmark, a broad consensus among the most important political parties has resulted in an agreement to reform the country's social security system. According to a recent article in NZZ which is not available online, the average productive period of a Danish person went from 40.5 years in 1979 down to 38.5 years in 2005, while at the same time, life expectancy rose by 2.25 years, resulting in the prolongation of the average pension duration from 19.25 years to 21.5 years.

The pragmatic Danes have resolved to raise the retirement age to 67 (from 65) by about 2025. Thereafter, the retirement age will be adapted dynamically to the average life expectancy, which is probably the most sustainable approach.

Friday, July 28, 2006

Belgium transposes Directive [BE]

According to IPE on its redesigned website, Belgium has now escaped further sanction by the EU Commission for non-transposition of the Pensions Directive by passing the law 51K2534 on 13 July.

Evidently, the Belgian Association of Pension Institutions has been instrumental in designing that bill, but search as we might, there was no functioning website of this Association to be found.

Wednesday, July 26, 2006

Legal commentary

It may not be the very latest news, but it's still a quite useful resource that is available online: the legal commentary of the Pensions Directive by Simon Arnot, published by the EFRP in 2004.

Sunday, July 23, 2006

Investment regulation in Poland [PL]

If this recent story about regulatory constraints in Poland is confirmed, it would mean that the Pensions Directive is not materially implemented there, yet. The fact that Poland is not among those countries that the Commission has decided to take action against would seem to have to be interpreted along the lines that the Commission has not yet assessed the material compatibility of Polish regulation. It will be interesting to observe further developments in this important market.

Friday, July 21, 2006

US Pensions accounting

Since David Zion's piece Analyzing the Impact of Retirement
has pensions accounting under US GAAP for object, it is prima facie not relevant for the purposes of this blog. However, such a standpoint would clearly be too short sighted. Both the US FASB and the IASB are currently preparing to revise their respective pensions standards with a view to a converged standard, fully cognisant of the very large importance of pensions on the corporate balance sheet, and the potentially even more severe impact on its cash flow statement. I am sure that standard setters will read such scathing criticism from investors of the current standard very carefully, especially since most of the provisions addressed are common to both sets of standards.

Thursday, July 20, 2006


As we know, static old age retirement systems are under severe stress due to increased longevity (ca. 2.5 years per decade). But that's not all: the World Future Society has an article about superlongevity. The proponents of superlongevity expect that the trend of increasing longevity will not remain stable, but will actually accelerate due to technological progress. Michael Zey reckons that life expectancy will rise to ca. 125 years by 2075 from the current ca. 80 years. This averages to rate of increase of about 6.4 years per decade. With that kind of perspective, the absolute necessity for more flexible and, most of all, delayed retirement should be painfully clear.

Saturday, July 15, 2006

Above average life insurance growth

In its latest issue of Sigma dedicated to the global insurance industry 2005, SwissRe sees above average growth of life insurance in Western Europe and in Middle and Eastern Europe if adjusted for a massive short-term policy downturn in Russia. The major trend observed in all those markets is a shift from traditional life business to tax favourable retirement provision business.

Amplifying pension funds [UK]

(Via IPE) In the latest issue of its Financial Stability Report, the Bank of England refers to pension funds as amplifiers of financial market shocks in two instances: It quotes anecdotal evidence of a feedback loop between the prices of long term UK government bonds and of similarly long term liabilities of pension funds. The continuing duration mismatch between pension fund assets and liabilities leads to demand for long term bonds, driving down their yields, which in turn drives down the discount rate with which fund liabilities are valued, thus increasing that position.

The second, and novel, feedback mechanism referred to is described in Working Paper Nr. 289. This paper demonstrates a statistically relevant amplification mechanism of DB pension schemes in the UK stock market. The transmission works via a) the additional leverage provided by pension schemes to their sponsors' balance sheets, if those schemes' underfunded status is considered to be ordinary debt, and b) the substantial cross-holdings of equity of other UK corporations in pension funds. Very interesting!

Pensions Review [IE]

Earlier this year, the Irish Pensions Board has reviewed the nation's pensions system. This week, it has delivered a more in-depth analysis of options for mandatory and quasi-mandatory second pillar system enhancements to the Minister of Social Affairs. This analysis does not appear to be available at this point.

It is of particular relevance to the Liechtenstein and Swiss point of view because those countries' mandatory second pillar systems are technically (and erroneously, in our view) considered to be first pillar by the EU Commission. This has some wide ranging implications.

Thursday, July 13, 2006

Pensions Directive part of EEA

It is a formality, and it has been expected, but it's nonetheless noteworthy: The EEA Joint Committee has added the Pensions Directive to the EEA body of law, effective 7 July 2006. Therefore it is also formally applicable to Iceland, Norway and the Principality of Liechtenstein now.

Monday, July 10, 2006

OECD Guidelines on pensions funding

The OECD is looking for comments on its draft Guidelines on Funding and Benefit Security. The 11-pages short document presents a very high level summary of best practices in the pensions funding field which is not binding to its member states. Without precise definitions, the provisions appear to retain a laundry-list character to pick & choose from, so it is somewhat difficult to be sure of the document's purpose. The Guidelines claim to be consistent with the Pensions Directive.

Saturday, July 08, 2006

Ageing & financial stability

This week's Third Conference of the Monetary Stability Foundation in Frankfurt has been dedicated to the challenges to the financial system arising from ageing and low growth. Prof. Weber, President of Deutsche Bundesbank, has given a rather thought provoking opening address, sketching the key transmission factors by which ageing impinges on financial stability.

Monday, July 03, 2006

Liability Driven Investment

JPMorgan has a very interesting new survey of liability driven investment (LDI) across Europe (via epn). LDI uses characteristic parameters of scheme liabilities as benchmark and is therefore most relevant to DB and guaranteed return schemes (such as the Swiss).

The survey has the best coverage in the UK, the Netherlands and Denmark / Sweden (where the regulatory environment are rather similar). The survey looks into attitudes towards LDI, asset allocation impacts, the ongoing duration mismatch between liabilities (ca. 20 years) and assets (still below 10 years), derivatives strategies (mostly the usage of swaps) and funding levels with a significant difference between UK deficits (74% of schemes in deficit) and other countries' schemes mostly covered or in surplus.

Sunday, July 02, 2006

Pensions accounting

This interesting overview article in epn discusses the current state of affairs and expected developments in accounting for pensions in US GAAP, UK GAAP and IFRS (changes to IAS 19), largely from the perspective of users of financial statements. As the proposal to revise IAS 19 is currently working its way through due process, it is expected that the revised standard should become effective in four years.

Turkey raises retirement age [TR]

In a commendable show of resolve, the Turkish Parliament overturned a presidential veto against its intention to raise the retirement age from 58/60 to 65 by 2048. This is seen as an important step to align retirement provision with the EU accession to which this important country strives for very resolutely. The investment provisions of the Pensions Directive appear to be quite another challenge to the Turkish pensions industry with its penchant towards government bond investments.

Europe Report 2006 [CH]

The Swiss Government has published its impatiently expected Europabericht 2006, an update to a similar analysis of the complex relations between Switzerland and the EU done last in 1999.

The Report mentions the Pensions Directive in several instances as a business opportunity not currently available to Swiss providers, or as a substantive vector for change in the non-mandatory segment of the second pillar in case it became applicable. In other parts of the report, the Directive is seen as related to a possible future Services Agreement, the negotiation of which has been adjourned in 2003. This policy stance evidently is detrimental to the interests of the Swiss pensions industry and therefore requires adjustments in several respects.