’Pension funds at risk from CMU’

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’Pension funds at risk from CMU’

The pensions industry has expressed concern that the European Commission’s capital markets union could force pension funds into low-risk, low-return asset classes.

The National Association of Pension Funds, PensionsEurope and the Pension Infrastructure Platform said the policies, which included removing barriers to pension schemes investing more money in low-risk, long-term assets, needed to be considered in the light of the effect on pension funds.

The CMU is also proposing the development of a more diversified financial system, unlocking the capital around Europe and establishing a single capital market.

James Walsh, policy lead for EU and international at the NAPF, warned: “If the CMU is to succeed it is vital that the investment opportunities provided by governments or the EC offer the kind of risks and returns pension funds need to meet their liabilities to pay pensions.”

In its response to the European Commission’s 27-page Green Paper, Building a Capital Markets Union, NAPF confirmed support for the initiative but warned that policies must be looked at through the lens of pension funds.

He said: “The holistic balance sheet, currently being developed by the European Insurance and Occupational Pensions Authority, would force pension funds to move even further into low-risk short-term asset classes such as government bonds at the expense of investment in equities and other long-term growth-generating assets.”

Mike Weston, chief executive of the Pensions Infrastructure Platform, said it was vital for pension funds to have a stable investment environment to get the long-term index-linked returns, but urged policymakers to “ensure a stable regulatory and fiscal framework to encourage infrastructure investment”.

PensionsEurope also urged the EU to work closely with pension funds to ensure prudential and supervisory frameworks encouraged long-term investment, and that regulation did not lock capital in the funds or undermine the willingness to invest.

Chief executive Matti Leppälä added: “As long-term investors, pension funds can contribute to stability. However, this will only happen if EU policies work well. Pension funds work in the interest of their beneficiaries, therefore freedom of investment is a central principle.”

The Investment Association warned that consumer confidence was key, and called on the EC to make sure that the CMU ensured efficient capital markets, appropriate protection, and transparency and accountability on the part of investment managers.

Adviser View

Darren Cooke, financial adviser at Derbyshire-based Red Circle Financial Planning, said: “I can understand the need for stability in the capital market but volatility is the nature of game. You can regulate elements but pushing pension funds into safe investments would put pressure on their capital adequacy requirements to meet its liabilities. It could be the final nail in the coffin of final salary pension schemes.”

Green paper response

NAPF’s members have more than €1.1trn (£800,000bn) of assets invested across the global economy.

Policy-makers should ensure investment opportunities provided by governments or the EC offer the kind of risks and returns required by pension funds as they look to meet their liabilities to pay pensions.

On infrastructure, national governments and EU institutions should ensure there is a clear and well-understood ‘pipeline’ of future investment opportunities.