The European Commission is hurrying to the retirement industry against EU legislation that could hurt the sector.
The European Market Infrastructure Regulation, passed in 2012, provides for an obligation for pension funds to put aside more money in order to comply with the EU legislation on derivatives trading. It sets minimal rules on the collateral that investors must have to back their trades. This regulation intends at establishing a safer regulatory framework for European financial markets through more stability, transparency and efficiency in derivatives markets.
It was thought however that these occupational pension funds would not dispose of a ready supply of money or other highly liquid assets necessary to meet the minimum requirements. They were therefore exempted, several times, from the requirement. The last exemption will come to an end in August 2018.
Aware of this situation, the Commission is currently working on a proposal to amend the Regulation. The pension industry, for its part, supports the idea of a permanent exemption.
The consequence of this legislation (if not amended) will depend on the country. Some Member States rely more than others on pension funds to finance people’s retirement. In the Netherlands, where the system relies significantly on pension funds, these rules would mean a long-term drop in retirement income of 3.1%. At the European level, this legislation would wipe 3 billion euro off European pensioners’ retirement income every year.
This amendment is also said to address concerns about the potential systemic risks posed by mergers between clearing houses. The idea submitted it to allow the European Central Bank to force clearing of euro-dominated securities to take place within the Eurozone, although the UK seems to be against the idea of empowering the European Central Bank.
This need of revision by the European Commission of a text adopted in 2012 underlines the need for a Pan European Personal Pension Fund which is more and more urgent in order to support sustainable pensions.
Read the Financial Times article here