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Welcoming moves towards a coherent EU-wide pension policy Back  
The Pensions Board is 10 years in existence this December. Its role as regulator and policy adviser on retirement income has developed over that time, with a highlight being the National Pensions Policy Initiative in 1998. The next ten years will bring the challenges of increasing the levels of pensions savings and the opening up of cross-border European pensions systems. Anne Maher, formerly of Irish Life€s corporate pensions business and current chief executive, is nearing the end of a five-year renewable contract. She discusses development themes with Oliver O€Connor.
In May 1999, Anne Maher gave a paper setting out the various efforts of the European Union since 1990 to set up some scheme of cross border pensions rules for non-social security, supplementary pensions. Then, the message was that a series of initiatives had come to nothing. The differences in tax treatment of pensions, both personal tax and scheme-level tax, was at the heart of difficulties. Throughout, many hopes were raised and disappointed that cross-border pensions could open up a new area of international financial services from Ireland. But last October, a new proposal for a Directive has been issued by the European Commission. In November, Maher attended an EU parliamentary conference to discuss the proposed Directive. What does she think are its chances of success?

€I think, from speaking to people in Brussels, that the chances this time of it actually being adopted are good. A different approach was taken this time. There was much more consultation before it was produced so the views of the member states and the various interested parties were sought. For instance, the Commission had meetings with the British, Dutch and Irish pensions supervisors, who have their own association, on several occasions on this.€

€This Directive focuses first of all on prudential matters and supervision, and then on removing investment restrictions. That is a difference from previous approaches which focused more on investment restrictions. The Commission have made it quite clear that they have no intention of telling Member States how to organise their pensions, public or private, or how they operate. The purpose of the proposed Directive is that, if you have supplementary pensions, certain minimum conditions apply to them.€

Cross border business
What about the opening of cross-border custody and management services? €Yes, this could be seen as the first step towards full pan-European pensions, which the EU Commission has said it would like to facilitate.€

€Of course, the big problem in the area remains tax. The Commission said that they are now leaning for tax co-ordination rather than tax harmonisation and how to bring that about remains a difficulty. If this Directive was adopted in the morning, you still wouldn€t have pan-European pensions because of tax problems. John Mogg, the Director General of DGXV, said that they hope early next year to bring forward proposals for tax co-ordination of pensions schemes. The other route it could come from would be court challenges, and there are a number of these now being considered for the European Court of Justice. It does open some areas of cross-border business of course, but it really needs the final step of tax co-ordination to take off. There€s a very serious commitment in the Commission to bring this forward and the Commissioner, Frits Bolkestein, has personally committed himself several times to bring about the Single Market for pensions.€

€I do think it will be adopted, and the target date is 2003 at the latest, after the normal processes have been gone through.€

What are the implications for Ireland from the proposed Directive? €There are a number of issues to be resolved from a supervisory perspective. The Commission has talked about some sort of protocol whereby supervisors in different member states would mutually recognise each others€ supervision. They talked about setting up a supervisors committee. There€s nothing like that at present. But at our meetings with Dutch and British supervisors, which is our own informal committee, we are constantly finding out that while our principles of supervision are similar, there is a huge amount of difference at detail level, of how we do it.€ €Take also the fact that the Dutch are supervising 1,000 large, industry-wide schemes, while we are supervising a large number of small schemes, 70,000. So the level of supervision is very different.€

€One area of the Directive where we would have to look at it is investment supervision, where they are proposing investment supervision in the way the Dutch operate it at the moment, and that€s not how we do it here. For example, statements of investment principles would have to be submitted to the regulatory authority, whereas at the moment we don€t require this. The Directive would also require us to obtain assets liability studies regularly. So we€d have to look at that.€

What would the implication be for cross-border custody or administration from the point of view of the Pensions Board? Would there be a change?

€I wouldn€t envisage that we would have a role in regulating the custodians. It is freeing up the position for cross-border custodians, but regulation would be a matter for the Central Bank or for the new Single Regulatory Authority.€

€There is also the implication of mutual recognition in that if you have pan-European pensions, they would be regulated in one country only, so if some of them were located here, we could find ourselves regulating compliance with other people€s social and labour laws. It would be a challenge. A concern would be that a pension scheme would operate in the environment that was the least demanding.€

While regulators within the EU don€t like to talk about regulatory competition or regulatory arbitrage, isn€t it possible that Ireland can continue to develop an advantage as a flexible and responsive regulator for pensions, as for international banking, funds and life assurance? Maher agrees. €Yes we are flexible, responsible and responsive, I€d agree with that, but there must be an appropriate balance€.

She also agrees that within the EU, insofar as cross-border pensions are set up, Ireland is well-placed and would be seen as such, alongside jurisdictions like Luxembourg, the Netherlands and the UK.

On the regulatory set-up in Ireland, Maher is comfortable with the rationale in the McDowell report that the proposed Single Regulator should not include pensions regulation. €Since we are a policy advisory board for the Minister as well as a supervisor, I can see the reason why the Pensions Board would not be included in a Single Regulator.

When the Single Regulator legislation is proposed, Maher agrees it would be a good idea to provide for a formal basis for information sharing between the Pensions Board and the Single Regulator as recommended by the McDowell report. €At present, we have a right to share information with the Revenue. Basically, the approach should be that whoever does the regulation, there should be no information or regulation gaps. More information sharing would make sense. It would also be required at a European level among pension supervisors, when mutual recognition comes in.€

Pension saving and coverage
The Pensions Board is keen to develop wider pensions coverage, to bring it over the 50 per cent level soon and up to 70 per cent within five to ten years. A Pensions Bill providing for Personal Savings Retirement Accounts (PRSAs) has been promised by the Minister for Family and Community Affairs for early next year.

Maher says that a new survey on pensions and retirement income coverage is due to be carried out to inform policy for the next five years. The Board will do this in conjunction with the Department for Social Community and Family Affairs.

With increased pensions and savings options being introduced, does Maher have concerns about private investors€ level of expertise as regards pensions and investments? €This is a big issue, all over. As regards investments, people do need more education and we have made a recommendation to the Minister about this. Also, with the high levels of property ownership in Ireland, we€ve also recommended that some work be done on how people can release equity for retirement income from property they may own. Broadly speaking, of course, saving for retirement can include a lot of things besides pensions. People having adequate retirement income is the policy goal, however it is achieved. Regulation should never drive what€s happening in product development but should respond to it€.

Maher adds that more pensions education per se will also be needed, with greater scope for self-directed investment, lump sum payments instead of annuities and so on. €People who wish to take some of the new options at retirement will need advice, I believe. And as regards pensions investment, some experience has shown that when people are investing for their own pension funds they can be quite conservative.€ Is that too conservative? €Well, more conservative than professional managers might be in the circumstances, to the point where the best returns and retirement income are not achieved€.

Ten years on
What has been the biggest challenge in her tenure at the Board? €I€d say the achievement of consensus on the National Pensions Policy Initiative in 1998. We started with quite divergent views from employers and trade unions, and managed to come up with an agreed approach. The partnership approach is very valuable since it means that the Minster€s decision-making is easier on the whole matter with a consensus already achieved€.

Is the Board suffering from staff recruitment and retention problems? €In that, we are no different to anywhere else, but we have good stability at management level over the ten years.€ The Pensions Board does not, however, have the freedom to pay staff as it wishes, being tied to Civil Service rates even though it is funded by a levy on pension schemes. Maher appears to recognise the implicit anomaly but says the matter might be addressed in a forthcoming review, and points out that it is a wider issue within the non-commercial semi-State sector.

€It€s been a very interesting and very challenging time, and I think people like to stay here because the work is interesting. We started from nothing ten years ago, and I think we, and my predecessor, Gerry Mangan, have built a good place to work. The future will bring a lot more interesting work, too.€

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