IPE asked three pension funds of different sizes in three countries – the Czech Republic, Sweden and Italy – the same question: ‘What do you see as the challenges and advantages of EU pensions directive?’ Here are their answers

Petr Benes, chairman and CEO of CSOB Pension Fund Stabilita, with responsibility for the co-ordination of the activities of Stabilita and its sister fund, Progress. The combined funds have AUM of CKZ10bn (e330m).
“Being a less mature pensions market means we have some important differences compared with the rest of the EU. Although some 50% of the Czech working population is involved in the pension fund system their contributions are low, on average e12 per month. So even though assets under management are growing by 17% per year the Czech pension funds sector still has operational costs of 2% of AUM, compared with 0.2-0.3% in a mature western European market.
“When the government was drafting the new Czech pension fund law that came into force last April it took into account some of the provisions of the EU pensions directive but it lacked the will to change the system to a great extent.
“Consequently, while the law reflects some of the EU recommendations I feel that we should follow the EU legislation to a much greater extent. For example, there are 50 EU recommendations involving best practice but they do not require member governments to pass specific legislation and so are not necessarily binding for all EU members. This is a pity because we need to change many things in the Czech pension fund market.
“The most important factor is the separation of a sponsor’s assets from those of the clients. Currently, all the assets are mixed and invested altogether on the capital market and at the end of every year 85% of the return is distributed to clients and 15% to the shareholder. So, we cannot offer our clients various portfolios according to their preference.
“We are required to supply information just once a year and to provide clients with a positive annual return, and we don’t evaluate our portfolio every day like in the EU.
“We would like to provide our clients with more differentiated portfolios. Now there is a complete mismatch between the asset side and the liability side because liabilities are very long, there is a 10-15 years time horizon and our assets are invested for one year because there is a need to provide our clients with a positive return every year. So it means the duration of our assets is lower than one year, giving a great mismatch between assets and liabilities. As such we cannot set optimal risk-return profile of our portfolio.
“The prudent person principle is not being adopted exactly. Obviously our portfolio managers have to be prudent because if there is negative return the shareholder has to make up the difference. But the new law contains no specific requirements addressed to portfolio managers or fund directors, not do we monitor the track records of various key people, particularly portfolio managers.”

Peter Antonsson, president of Telia Pensionsstiftelse, the corporate pension fund for Swedish telecoms company Telia Sonera AB. The pension fund has AUM of circa e1.5bn.
“I feel that regulation through the European pensions directive may cause us some practical and administrative problems. As a Swedish pension fund we are just a pledge for the company’s pension liabilities and currently we are only responsible for investing and managing the assets contributed to the pension fund as effectively as possible, reaching defined performance targets and for being able to pay out remunerations to the company on demand.
“Consequently, the pension fund has nothing directly to do with individual pension rights, for example paying out the benefits.
“So the Swedish proposal for implementing the directive presents us with some potential problems. For example, it states that the pension fund has the obligation to inform employees of their individual pension rights on demand. However, being a pledge for the company’s pension obligations we have no direct information of the status of each individual’s pension rights. And the situation could even be more complicated when one individual’s pension rights can be secured from sources other than the pension fund, such as through insurance or by keeping the liabilities on the balance sheet.
“Currently all we do is to inform Telia Sonera about the total amount of assets and to meet the potential demand from individuals the pension fund would need to obtain the information from the company. But under the directive the board of the pension Fund is liable for the release of this information to any individuals who demand it.
“I get the impression that the proposal does not recognise the difference between pension insurance companies, or pensionskassor on one hand and pension funds, the pensionsstiftelser, on the other.
“The contributions to a pension fund are always made by the sponsoring company, in our case Telia Sonera, and are never made by individuals. How much and how often the contributions are made is up to the company. But if the pension liabilities are not covered through a pension fund they must be covered by either insurance or through the balance sheet.
“The finance ministry formed a working group to formulate the proposal for the implementation of the directive on which the Swedish Pension Fund Association (SPFA) was represented. Telia Pension Fund is a member of the SPFA and so participated in drawing up the industry’s response to the proposal. A letter to the ministry was agreed in January.
“In addition to the key issue, which affects all the major companies in Sweden, it also addresses a couple of other questions where clarification is need, such as a the proposal’s mentioning of the ‘top management’ of a pension fund without defining just who that is and its requirement for much more reporting to the supervisory authorities, both the existing supervisory authority for pension funds, the Länsstyrelsen, which will focus more on legal issues, and the Finansinspektionen, which is the supervisor for banks and insurance companies and will look at asset allocation. This will cause us some administrative problems and related additional costs.
“However, we have a very sophisticated asset allocation structure and so the directive will result in no differences on this front as far as I can see. Our finance policy already meets the directive’s stipulations although they might cause problems for other pension funds.”

Andrea Giradelli, operations director Fonchim, the industry-wide pension scheme for chemical workers, which has AUM of e1bn.
“The European directive does not pose many challenges to Fonchim. It appears to be a bit empty because if they want to make a single European pensions market they first would have to harmonise the fiscal aspect in every country.
“We already fulfil most of its requirements. For example, Article 12 of the directive says that we have to issue a document explaining our investment policy at least every three years. But Italian law already obliges us to give this information every year.
“Similarly with Article 8, which says that there must be a separation between the sponsoring company and the pension fund. Our law already imposes a separation between the sponsor and the fund.
“However, the introduction of the prudent person principal may be liberating with regard to our stringent conflict of interest regulations. Since the financial industry and financial products change every five minutes, too strict a system of regulations risks preventing a good fund manager producing the best results for the members.
“Our benchmark as far as equities are concerned is the MSCI World. But today, under Italian law I am in a conflict of interest situation if I buy a single share in a listed Italian company that belongs to the petrochemical or pharmaceutical sector, or a share in a company that owns a company in out sector or are owned by the same company that owns a company in our sector.
“This is a fantasy, a mirage. If I buy, for example, ICI or a financial company in the US I don’t know whether it has a participation in a small chemical company in Lombardy, which might have associates in my fund. We are the managers of the money of the people and we manage these funds in the most clear and profitable and risk-averse way. We do not have the whole raft of information necessary to comply perfectly with the law’s articles. But one doesn’t buy a stake in a chemical company because it is part of one’s industry but because it is a good investment, so this restriction is bad.
“So the prudent man principal could liberate us from these bureaucratic requirements, make things more relaxed and give us more investment opportunities.
“On the other hand sanctions to prevent bad behaviour should be reinforced: ‘I let you go, but if you fail I will kick you out’ is the best principal.”

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