EFRP: The voice of Europe

Francesca Fabrizi meets EFRP’s Secretary General Chris Verhaegen

Chris Verhaegen has been Secretary General of the European Federation for Retirement Provision (EFRP) for ten years, having previously worked nine years at the Belgian association, so her contribution to the European pensions space has unarguably been considerable: “The role with the Belgian Federation of course led me to the EFRP”, explains Verhaegen, “but they are two very different jobs – with the Belgian association you have to represent your country and your Federation but with the EFRP you are supposed to pull together all the members from across Europe into one common viewpoint where possible, which isn’t always easy.”

The EFRP’s membership is made up of national pensions associations from across Europe, which in turn represent company sponsored and industry-wide supplementary pension plans – so those pension funds that are responsible for 2nd pillar or occupational pension provision – and having proved to be a centre of expertise in the European context for pensions related issues, the EFRP is consulted at a high level whenever EU policymakers take views in this field. This means it is dealing with the European Commission and European Parliament on a regular basis, as well as working closely with the OECD, IOPS and CEIOPS.

Verhaegen explains: “It is our role to promote occupational pensions/ second pillar pensions across Europe. We effectively want to see a high coverage of supplementary pensions across Europe and by this we mean pensions that are safe and affordable for large sections of the population.”

A large part of this involves highlighting the huge costs associated with providing pensions: “This is a very important point as with the way things are at the moment you either have to provide lower pensions or you have to put more money into them – and both of those options are detrimental at the end of the day, so one of our guiding principals is that you can only have a really good pension system if you build it on a three tier model where you have a statutory pension for everyone reaching retirement, and then build more in occupational and also in supplementary individual schemes.”

One of the main stumbling blocks, argues Verhaegen, lies in the fact that there is insufficient knowledge and understanding among many policy-makers of the acute need for efficiency in the system: “For example if over 40 years your pension fund has a difference in investment performance of as little as 0.5 per cent lower than it could be, at the end of your career this will equate to either a 30 per cent higher cost of the pension or a 30 per cent lower pension; this is basic stuff for us but we don't often come across this level of understanding.”

The IORP
One of the main areas the EFRP is working on at the moment is the implementation of the IORP Directive which, argues Verhaegen, is not yet achieving as much as it could: “I often get the feeling that people don’t realise the full potential of this Directive but of course it depends a lot on the national supervisors, whether they are promoting it properly or putting a brake on it.

“Also everything is still very new and even though the rules say the implementation officially ended in September 2005, it in fact went on until July 2007 as there were some countries that needed secondary legislation; and time consuming as it may be, the devil is in the detail and if you want to operate properly then you have to know all of this detail.”
On a more positive note, she adds, many countries are doing their homework in this area and there is a real demand in the market to know more about the Directive and how to make it work; “Of course the social labour law acts as a barrier as do the tax issues, but even though the tax issues will not be resolved in one go – as it is not feasible to have one tax measure that will eliminate all these problems – they will become less of a problem as the European Court of Justice does its work in this area.”

For example, in 2005 the EFRP lodged complaints against 18 EU Member States for their alleged discriminatory taxation of dividend and interest payments to foreign EU pension funds. The European Commission has since opened infringement proceedings against eleven of these who have been issued with letters of informal notice. This should mean good news for the European pensions industry in the long run – should the ECJ decide to follow the Commission’s reasoning, pension funds which have filed claims in a timely and correct manner should be
granted a refund regarding withholding tax on dividends and interest paid and levied in other Member States in breach of the EC Treaty.

But while the EFRP is pushing to see the IORP Directive reach its full potential, it is not so keen on seeing it undergo a review at this early stage of implementation. “I hear the market and some at the Commission saying there is a need to review the Directive, but how is that feasible after only three months of full implementation? You have got to give it time to bed down so that everyone – including the consultants and the market operators – can explore its full potential, and then when it has been tested in the markets for a number of years you can then know what’s working and what isn’t.
“It is as if the Solvency II initiative triggers a review of the IORP Directive – we couldn’t disagree more, and that is a real concern. We first want to see what the IORP Directive will deliver to companies and workforce. And that needs some years. If flaws at EU legislative level are detected, we are ready to discuss those.

“Nobody has yet put on the table real hard evidence of why there is a need for the review, so we say if it isn’t broken don’t try to fix it.”

The CEEC
Another big initiative the EFRP has been working on in recent months has been to bring the Central & Eastern European countries into the debate on efficient and safe pensions, despite the differences in the multi pillar pensions model between the EU-15 (old) and the EU-12 (new).

“The fact is that there is a gap and there are differences in the pension systems, but we all share the common goal which is to secure safe and affordable pensions for working people, so we launched the CEEC Forum to allow these countries to enter into the pensions dialogue.

“We are all in the same Union so what we must do is make sure that if there are new European initiatives, they take into account the systems of the Central and Eastern European countries otherwise there will be a clash, which is exactly what has been happening with the IORP.”

Taking this point a step further, Verhaegen argues that the time has come for the Commission to put an EU model of a pensions structure on its agenda: “We think the Commission should recommend what an EU pension model should look like but the discussion has not even started and we think the Commission should take the initiative on that; we are very much in favour of it as we think it really is necessary in order to clarify or at least make apparent the differences
there are in the pensions systems throughout the Union. If really we want to promote multi pillar pensions then we have to do this exercise.”

The first meeting of the CEEC Forum took place in March this year, when Csaba Nagy, president of Stabilitas, the Hungarian Association of Pensions Funds, accepted the role as Chairman.

The EFRP has also recently appointed a new chairman, Angel Martínez Aldama (ES), director general of Inverco, who succeeds Jaap Maassen who has successfully chaired the Federation since October 2004. Marcello Messori (IT) and Joanne Segars (UK) have also been elected as Directors.

F urther information on the EFRP is available at www.efrp.org