APB European Pension Summit
Speech staatssecretaris Heemskerk, t.g.v. het APB European Pension Summit te Heerlen, woensdag 26 September 2007.
Ladies and gentlemen,
It is said that money makes the world go round. In the case of a merchant nation like the Netherlands, this is particularly true. The Netherlands has a long history as a financial centre, based on innovation and international partnerships.
After all, the Dutch conceived the world's first shares and established the first stock exchange. This later sprouted the first options trading system. Many lease constructions and financial products based on derivates originated in the Netherlands.
Today our financial sector is highly significant for the Dutch economy. More than 300,000 people work in the sector in the Netherlands, providing all kinds of services. It contributes to 7.4 per cent of our Gross Domestic Product. A higher score than the financial sector in the UK which contributes 6.5 per cent. (Bron: CBS)
One of our financial services concerns pensions.
Pensions are no ordinary financial product. In the tightly regulated financial world, pensions are even more bound to rules. And rightly so. For many, many people rely on them as a means against poverty in old age. Or more positively, to sustain welfare and fulfil their needs, for example on health care.
The theme of this conference is: 'Pension diversity and solidarity in Europe'. Based on my political background, being a labour politician, you might expect the focus of my talk will be on solidarity. Not so.
As a minister for Foreign Trade, I want to focus on the diversity part. Of course, solidarity is of the utmost importance. But is also important to focus on the opportunities which the changing European pension landscape and changing European Commission policy are offering our financial sector.
Therefore, it is important to focus on diversity, on the differences between EU Member States to the degree in which they are ageing proof. And on the opportunities new developments in Member States can offer the Dutch financial sector. For I believe Dutch companies can and should play an important role in providing innovative answers to new financial demands throughout Europe.
1. First I will talk about the diversity in European pension systems and the opportunities this offers.
2. Then I'll come to the unique selling points Dutch financial service providers have to offer on the European financial market.
3. Finally I will talk about how the Dutch government policy aims at strengthening those unique selling points.
1. Diversity
Let's take a look at the way different Member States are handling their pension funds.
Diversity; the Dutch way
I will start with the Netherlands. The Netherlands is frequently praised for its largely funded pension system. As you know, the Dutch pension system consists of three pillars. The state pay-as-you-go pensions. The funded occupational pensions.
And the pensions provisions individuals arrange privately. Which, of course, are funded as well.
The Dutch have saved a lot in the second and third pillar. Pension savings per individual are high.
And, maybe even more important, the number of people saving for their old day is high. Over 90 per cent of Dutch employees participates in a pension scheme. This is much more for example than in the United States, where only about half of the workers participate [Bron: 'Kosten en baten van collectieve pensioensystemen' een uitgave door de vereniging van bedrijfstakpensioenfondsen].
This relatively favorable position does not imply we have been without problems. Having a large funded part also confronts one with challenges. Like how to handle falling equity and low interest rates. And how to cushion the unintended macro-economic effects of policies of pension funds.
We have learned our lessons. Both financial supervision and pension contracts have been adapted.
The indexation of pensions is no longer routine.
It depends on the policy of the pension fund.
The result is that the financial vulnerability of pension funds has decreased.
That said, most citizens continue to believe that pension funds are subject to nation-wide indexation. So challenges in the area of communication and transparency remain.
Also, largely funded pensions make the Dutch also vulnerable to inflation. In this respect, it's worthwhile to underline the importance of the stability and growth pact. Hence, the Dutch government remains a full supporter of this pact and the independence of the European Central Bank.
Diversity; other Member States
This leads me to a few remarks on the other Member States.
Even though we would like some other countries to make more progress with respect to the long-term health of their finances, I think it is fair to say that all countries are well aware of the challenges that ageing poses.
Most countries are trying to make progress on the three pillars toward sustainable finances: reducing government debt, increasing labour participation and reforming the pension system toward more capital funding.
With respect to the last pillar, various countries are taking steps to replace part of their pay-as-you-go system by capital funding. One example is Germany, where the Riester reform seems to yield results.
As another example I mention Italy, which has approved a new law at the end of 2005 to boost the growth of private pensions. It also sparks a gradual transition toward capital funding.
Various eastern European countries are building capital funded pension pillars from scratch. For instance, Hungary has passed a law in December 2005 that would potentially promote pension asset growth. The new regulation features an additional fully funded pillar.
Diversity; chances
These are just a few examples of developments in other Member States. They underline my point: the inevitable adjustments in the European pension systems are as much an opportunity as they are a threat. And as minister for Foreign Trade I like to focus on the opportunities.
The market for occupational retirement provision will be highly attractive in the near future. To name just one figure: within western Europe more than a doubling of pension assets is expected. Estimates of a market of 16 trillion euro in 2015 have been made, of which the major share should come from Germany, France and Italy [Bron: 'Western European Pensions, Reform Trends and Growth Opportunities' van Allianz Global investors].
Diversity; and the single financial market
A single market for financial services is a necessity, both to face the threats and to get the benefits.
Of course it has been a long standing EU policy goal to stimulate the integration of financial markets.
But bringing it about still requires some effort.
The road map toward a single market for financial services is the European Commission's Financial Services Action Plan. In recent years, significant progress has been made. Which is not to say that integrated financial markets have been achieved.
Various obstacles to cross-border activities still exist.
The commission has concluded that progress has primarily been achieved at the wholesale level, but less so at the retail level. It has therefore recently published plans to enhance retail financial services integration.
Closer to the pension arena, there the directive on the activities and supervision of institutions for occupational retirement provision. I think it is fair to say that the real impact of this directive is still to come.
But I have no doubts that dynamics on the European pensions market will increase.
A single financial market will deliver various benefits.
It will stimulate competition and thereby enhance efficiency.
In the long run these advantages will be handed down to consumers in the form of lower prices and beter service.
Also it will provide more international mobility to employees as the hassle of changing pension funds is avoided. In the end, the single financial market will contribute to more labor mobility and to the development of funded occupational pension pillars.
For pension providers a single financial market means the possibility to reach economies of scale.
And to multinational employers it may open the way to concentrate the management of pensions and pension risk in one country. E.g., there is only one national supervisor to deal with, and there is no longer any need to run sometimes small pension arrangements in some countries of operation.
2. USP's NL
As you can see, challenges in the pensions industry and the gradual creation of a single services industry translate into lots of opportunities. So, you may wonder: How can the Dutch financial sector harvest the benefits of the developing single financial market? Well, we have several unique selling points. I'll name a few.
First of all, we have a long experience with the efficient execution of a pension system characterized by collectivity and risk sharing. This is indeed unique in the world.
Second, we have a strong pensions infrastructure.
We have pension services providers that are knowledgeable, experienced and innovative.
Third, We have a work force which is highly skilled.
With expertise in the profession of actuary, risk management, fund management and asset management.
Last but not least, we have experience with a multidisciplinary approach toward pension issues.
3. NL Government policy
This is a strong hand of cards for the Dutch financial sector basis.
But in the highly regulated financial sector the government plays a vital part as well - not only as supervisor and regulator, but also as driver, facilitator, director and coordinator.
In recent years, we have worked hard to strengthen Dutch competitiveness. In order to develop further into a strong secondary financial centre we will put extra effort in strengthening the international competitiveness of our financial sector in the years to come.
This ambition and the accompanying aims are stated in the recently published Government Action Plan [gezamenlijk actieplan van Fin, EZ, SZW en Jus dat begin deze maand mede namens EZ naar de TK is gestuurd, zie bijgevoegd]. The pension market is one of our points of focus.
Since we have quite some unique selling points, we should seize the opportunities in front of us and capitalize them. The Dutch pension markets is well equipped to develop into a first-class leader
I will mention three key aspects in the Dutch government's vision on the financial sector in general and pension providers in particular:
1. Better coordination and innovation
The Netherlands will have to make a better coordinated effort if it is to maintain and expand its position on the financial markets.
Thanks to clear choices for niche markets, new financial centres have developed fast, all over the world. Including in fields where we had always played the leading role, like the pensions market.
In order to improve coordination the financial market in cooperation with the government has set up the Holland Financial Centre. It has got off to a flying start, with an impressive list of parties subscribing to it.
It will promote the Netherlands as a location for the financial sector, and lobby for the sector's interests internationally.
The Dutch government will also concentrate on strengthening the innovative capacity of the financial sector. We have nominated pensions and social insurance as a key area in which to promote innovative products.
For example we have created the 'Innovation Room' in which financial market parties can get guidance on the implications of regulation and supervision for their innovative services and products. All relevant ministries and supervisors are connected to the Innovation Room and committed to help innovative financial service providers.
2. Asset pooling.
Essentially, asset pooling by pension funds involves nothing less than the investment of capital by two of more pension funds for their joint account. The main perceived advantages are benefits of scale and tax efficiency.
The Dutch investment fund 'Fund for joint account' (Fonds voor Gemene Rekening (FGR)) is transparent for tax purposes and is therefore regarded as the ideal vehicle for asset pooling in the Netherlands. We have already taken action to promote the Dutch investment 'Fund for joint account' (FGR) and will continue to build on its success.
3. Pan-European pension funds
We will implement regulations which will provide a legal framework tailor-made for grabbing chances on the internal European market.
It will enable the establishment of institutions of occupational retirement provision in the Netherlands.
Such institutions can benefit from the European passport for cross-border operation of pension schemes.
The real challenge for is to make sure the Dutch institution of occupational retirement provision, also known as General Pension Institution (Algemene Pensioen Instelling), can benefit optimally from the possibilities provided by the so-called IORP-directive.
And to do so without harming the many merits of our current pension system.
This leads to the thought that this pension institution should focus on the execution of pension schemes.
And be less intertwined with the social and labor side of pensions.
Ladies and gentlemen,
The European pension sector faces some serious challenges. An ageing population, an integrating European financial market, a globalising world economy. However, it does not have to face this challenge alone. The Government and its social partners share this responsibility with the sector.
If we do so, the upside can be huge. It means European citizens with lower pension payments, better service, and greater professional mobility. It means internationally operating companies that can organise their pensions more efficiently. And it means financial service providers that can achieve economies of scale.
The Dutch government is determined to harvest these benefits. To remain an attractive country for institutions on the European pension market. And to let our current institutions play a major role.
We know our pension institutions share some of our ambitions. We hope you share our willingness to cooperate and swiftly put plans into actions as well.
Thank you.