Playing a waiting game

The chairman of the European Federation for Retirement Provision is willing to take a pragmatic approach, he explains to Peter Davy

Chairman for just over a year of the European Federation for Retirement Provision (EFRP), Angel Martínez-Aldama likes to take an overall view. After graduating in law and business administration from ICADE, Pontificia Comillas University in Madrid, he started his career with a brief stint in the accountancy department of Unilever – a company that, interestingly, played a significant part in the development of the EFRP. However, after no more than six months he swiftly moved to CNMV, the Spanish Stock Exchange Commission, where he worked in the issuers and collective investment divisions. From there, in 1995 he went on to Inverco, the Spanish Association of Investment and Pension Funds.

"After five years for the regulator, I thought it would be interesting to be on the other side of the court," he says. "At the same time, though, with an association you can still take a helicopter view of the movements and trends in the market. You're not in the market, but you're involved in the decision making process and can influence the proposals by politicians and regulators." Doing so must have proved interesting enough, for he's been hovering there ever since.
Not that it has stopped him getting around. Despite being promoted to head up Inverco in 2001, Martínez-Aldama has also found time for several other vantage points. He's on the management committee of the European Funds and Asset Management Association in Brussels; he serves as a board member of the International Federation of Pension Fund Management Administrators and the IberoAmerican Federation of Mutual Funds in Santiago, Chile; he's secretary and a member of the steering committee of Madrid's World Pensions Association and also a member of the social security and labour relations committee of the Spanish Employers Association, CEOE. Finally, of course, he's been a board member of EFRP since 1996, serving as its vice chairman from 2001 until October 2007, when he move up to take on the role of chairman.

This was a notable shift for EFRP. Martínez-Aldama is only the third chairman in the organisation's 27-year history to be appointed from outside the continent's two big defined benefit markets, the UK and Holland. The only other exceptions have been appointees from Ireland (another DB-based market) and Belgium, where EFRP has its home. Martínez-Aldama's home country, by contrast, has a resolutely DC market – and a small one at that. Private pension assets in Spain are estimated to amount to just 22 per cent of the country's GDP by Towers Perrin – little more than a third of the proportion in France, let alone that in the UK or the Netherlands. And much of this money is in personal private pensions rather than the second pillar.

Of course, today this has probably made the new chairman perfectly qualified for the EFRP role. As he says, the challenge Spain faces is the same as that confronting the rest of Europe, only more so: it needs far greater development of the occupational pensions market – which is a big part of what EFRP works to promote – and nowadays that's most likely to be in the DC sphere. "I can't say that is why the board proposed me, but obviously the movement from DB to DC in markets across Europe is quite clear," he says.

Nevertheless, he's reluctant to make too much of this – mostly because of his determination to take the long view. As Martínez-Aldama sees it, it's pointless to obsess over the different approaches and miss the main challenge.
"We shouldn't see DB and DC as different movements," he argues. "They're two sides of the same coin. Both are important, and what's most important is that employers have the opportunity to provide an adequate pension in a way that's affordable. We have a vital challenge in Europe – that only 50 per cent of the working population is covered by a supplementary pension scheme – and we have to increase that because the first pillar PAYG systems in many countries are going to decline very heavily."

Que sera sera
This long-term perspective is also useful in another respect: it prevents Martínez-Aldama from becoming discouraged. In the face of government dithering and crises, he maintains a relaxed optimism. Take the recent financial woes. "Of course pension funds aren't immune, but most are looking to provide benefits for 20 or 30 years' time," he points out. "This isn't the first crisis pension funds have faced. We had the dotcom crisis at the start of the decade; the Asian crisis in the mid 1990s; a serious setback in 1987… These things happen from time to time."

Similarly, the frustrations faced when pushing developments such as the pan-European pension, which he's long championed, are casually waved away. As far back as 2004, Martínez-Aldama was saying EFRP was hopeful that a pan- European pension fund would be "a reality sooner rather than later". Now, of course, it is – but only just. Figures to last June show 70 occupational retirement provision (IORP) schemes in operation. So is he disappointed? Not a bit of it. As he sees it, there would be no point. "In principle the directive should have been implemented by September 2005, but the reality is that the countries didn't finish transposing the directive to their national legislation until May 2007," he says. "It's still early days." What matters, he insists, is that it's moving the right way."In Spain we have a saying that the first step is the hardest. Once you've taken it, the developments can go further and faster."

This also helps explain why he remains optimistic about Europe's efforts to address its pensions problem.
Nowhere, perhaps, is the pace of change more frustrating than in his native Spain. The Spanish parliament has recently established a committee that will advise the Government on future reform of the system, which is reviewed every five years, and its recommendations won't be given to the government for several months. However, expectations are already modest. "I shouldn't think we'll see anything drastic," says Martínez-Aldama, admitting that there seems little sense of urgency among the politicians. Nevertheless, he's still hopeful that the review will serve a useful purpose. "What's important is that from time to time these reflections are put in front of citizens, and I hope this will help highlight some of the figures and the fact that the PAYG system is unsustainable," he says.

Emphasise the positive
Moving outside of Spain, Martinez-Aldama admits that there's been limited progress elsewhere in Europe, but again he wants to focus on the positives. We shouldn't ignore the progress that is being made, he argues. Take the development of PERCO in France; the changes scheduled for 2012 in the UK; the Green Paper in Ireland. Given that social security systems remain the competence of national governments, and are inextricably linked to the development of occupational markets, it's not surprising that there's a mixed picture across Europe. However, if countries have not yet come up with the answers when it comes to pension provision, we should take comfort that an increasing number are asking the right questions, he says. "There's plenty of black spots, but there's light on the horizon as well," he argues. "I always say you shouldn't look at European movements from the short-term perspective. If you're short-termist you will be terribly pessimistic, but if you look even in the medium-term, things are clearly going in the right direction."

Fundamentally, though, the Spaniard knows he can afford to be serene because his argument is unanswerable. The politicians tend to see little beyond the next four or five years – "after all, that's the mandate they've been given," he points out – but the need to boost the occupational market is more apparent with each passing year. Sooner or later, Martínez-Aldama knows that they're going to have to come round to his way of seeing things.

WRITTEN BY PETER DAVY, A FREELANCE WRITER