Alan Pickering, the new chairman of the European Federation of Retirement Provision (EFRP) and a former chair of the UK National Association of Pension Funds (NAPF) has been around long enough to know a pensions scare story when he hears it.
His role at the EFRP confronts him directly with the hyperbole of the 21st century pensions malaise – the “demographic time-bomb”.
Pickering gives short shrift to the doom-mongerers, instead concentrating on practical solutions to the problem of increasing longevity within a changing pensions market. “Increased longevity is not bad news, in fact it is 100% good news if goes hand-in-hand with quality of life.
A partner with consultant Watson Wyatt in his day job, Pickering is keen on solutions rather than problems. He quickly outlines what he believes are the four cornerstones integral to meeting the European pensions quandary going forward; diversity, solidarity, simplicity and stability.
“These are the principles that will influence my interface with people around Europe who are trying to face up the challenges presented by longevity,” he states.
Diversity, he notes, is vital as the boundary between second and third pillar retirement provision becomes more blurred in the future. “I think there is an important role for both state and private provision and would like to see many different forms of private provision, so that people in European countries can have the kind of private provision that suits them.
“I wouldn’t want to see Brussels or an expatriate Brit like myself trying to squeeze out diversity within Europe.”
On Solidarity, Pickering’s shift into the European sphere becomes evident.
Painting a broad picture, he comments: “We have to be inclusive in such a way that there are not rich people’s pensions and poor people’s pensions. We have to engage everyone in a collective solution to the pensions challenge.
“That collective solution may have individual solutions within it, but I think that an inclusive pension system can oil the wheels of European economic development rather than gum up the works.”
Simplicity, he adds, is essential for ensuring that pensions are attractive to employers, workers and consumers.
One of his current tasks in the UK is to advise the Department of Work and Pensions (DWP) on simplification of the UK pension regulation system.
The UK lesson, he believes, is valuable for Europe: “We have had layer upon layer of well intentioned government intervention, but each layer has been almost an isolated attempt to address a particular problem that might have been decade specific.”
“As a private pensions market begins to develop in Europe then I hope that they can learn the lessons of the UK where the system has become over bureaucratic and a disincentive rather than an incentive and too expensive.”

Stability, he says, means transcending the electoral cycle. “What we don’t want is that every time there is a change of political colour the whole system is dug up and started again.”
Indeed, Pickering believes that the role of the state in pension provision is vital . “I genuinely believe that the state has a role as a provider of pensions and shouldn’t just be seen as a regulator for pensions. “Government can cost effectively provide pensions for poor people and provide the first tranche of retirement income for those who are rich enough to be able to build upon that.
“I am a great believer in universal taxpayer funded pension provision.”
He adds that he is an equally passionate believer in the private sector with the employer being involved in that private sector pensions to the maximum degree. “Most people get most of their income from employment and I think that it is cost effective and socially desirable to involve the employer in their employees pension accumulation.”
“There is a naïve view that by transferring an expensive promise from the public sector to the private sector makes that promise less expensive.
“An overindulgent promise is overindulgent whether it is made by the public or private sector.”
However, he does believe that funding gives a degree of discipline and transparency of costing that is lacking with politicians.
And he is adamant that if the government wants the private sector to play an increased role in pensions then that role should be on private sector terms – a tacit rebuttal of some of the prescriptive suggestions being put forward at the European level such as biometric risk and quantitative investment rules. “You musn’t over-regulate the private sector and limit the way in which the private sector can invest pension assets productively, beyond ensuring that there are adequate standards of conduct and a prudent person rule.
“Where politicians will make things worse rather than better is where
they ask the private sector to give
guarantees that are more expensive
to provide in the private sector than they are in the public sector. “In the private sector absolute security is absolutely unaffordable.”
Elaborating his view on the pensions directive, Pickering backs the ‘open co-ordination’ approach being taken among the various European bodies: “I see nothing wrong with that as long it allows subsidiarity.
“I would like to see a directive that is enabling at country and pan-European level by recognising that pension rights in one country can be transported to another.
“We don’t want a directive that is so prescriptive that it fails to take into account national politics and culture.”

However, he believes the softly-softly consultation approach of the European Commission may not deliver unless concrete steps are taken, pointing out that the draft directive was “as weak as it could be” in terms of creating an enabling model.
“My fear is that the longer the debate goes on the greater is the likelihood that the remaining positive elements within the directive will be watered down, whereas some of the prescriptive elements will be increased to a level where the directive could be counter productive.
“If we lose the prospect of prudent person investment strategies and pan-European pensions, but end up with increased regulation on how pension schemes should be designed financed and marketed then the directive will not have triggered the progress that either the Commission or the EFRP would like to have seen.”
Optimism prevails though. Pickering hopes that by 2005 a pan-European pensions vehicle will have arrived through commercial and political channels rather than through court action, which he warns could turn out to be more of a hindrance than a help.
“The European Court of Justice (ECJ) is not a political or debating chamber and the danger is that it will provide an answer to a specific question that it is asked and we’ve no control over what question is asked nor of the wider ramifications of what the answer might be.”
The EFRP’s role as an intermediary in this process, Pickering believes is paramount. “What makes the EFRP special is that we believe in a well run second pillar, but we want as much subsidiarity as possible for it, from Brussels to the member states and from the member states to the employers and employees within each country.”
Consequently, he senses a shifting agenda of the association: “In the past the EFRP has been too focused on the detail of what has been or should be in the directive. I detect that the current board of the EFRP is much more excited by the strategic issues of sustainability and public private partnerships based on as much subsidiarity as possible.”
Asked whether this bears the mark of his own hand on the association, Pickering replies diplomatically: “The EFRP has evolved and I reflect that evolution rather than drive it.”
The evolution will have to take into account the blurring boundaries between second and third pillar pension provision as employers increasingly mix and match the kinds of employee benefits they offer. Pickering says this is a “daunting challenge”.
“Trying to finesse that on a Europe-wide basis is going to be quite difficult. “In some countries there is still considerable animosity between second and third pillar providers, whereas in other countries the relationship is much more client/servant - ie the second pillar is the client of the third pillar provider.
“No longer is life going to be as easy it was in the past when you could generally say that there were separate compartments between the second and third pillar.”
Easy or not, Pickering says the EFRP will have to initiate dialogue with all sides - including insurance companies - a relationship that has had its problems in the past. “Experience might show that my objectives are over optimistic, but I’d like to find that out by personal experience rather than hand-me-down messages.”
Certainly, the EFRP chairman’s “big-tent approach” to European pensions reflects his desire for the association to focus on issues such as sustainability and the interaction between public and private pensions systems, rather than getting bogged down in the smallprint.

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