EU Commission ignored by nine member states on pension reforms

Pensioners on state pensions being frozen after moving overseas

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Ursula von der Leyen’s Commission is being ignored by nine member states on its recommendations to reform their pension systems. These are the Czech Republic, Germany, France, Ireland, Italy, Luxembourg, Malta, the Netherlands and Poland.

During the European Semester in 2019, the EU executive issued recommendations on the “long-term sustainability of public finances”.

Some of the 17 member states that received the recommendations, were also urged to work on pensions in order to receive the Next Generation EU funds.

The recommendations were once again renewed this year, but nine of the 17 member states told to make the changes are yet to comply.

In fact, according to EURACTIV, only six countries “explicitly” planned to reform their pension systems.

The Commission said “they should follow up on the specific recommendations […] and commitments made in their recovery and resilience plans” to “limit the budgetary impact of ageing populations”.

Although Germany has committed to increase statutory retirement age to 67 by 2031, the Commission reckons Olaf Scholz’s government has to move further on the issue.

Emmanuel Macron’s government is also yet to formalise its pension reforms in documents sent to Ursula von der Leyen’s team.

In Italy, the retirement age is already 67, but the new Giorgia Meloni’s government is working to bring that down to 62 or 63.

In the UK, financial regulators have also said that the pensions system needs to change following the mini-budget market turmoil that saw some pension schemes scrabbling for cash.

The Pensions Regulator (TPR), which regulates pension schemes and advises how they are managed, told the Work and Pensions Committee that there are important lessons to be learned in how schemes invest the money of pension holders.

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Many have investment strategies called liability-driven investment (LDI) funds, which were at the centre of the pension crisis in September.

At the time, yields on UK Government debt surged to historic levels and schemes faced sudden collateral calls, meaning they had to raise cash very quickly.

Charles Counsell, the chief executive of TPR, told the committee: “What happened at the end of September was extraordinary movements, absolutely unprecedented movements.

“Obviously, we have asked ourselves the questions of what lessons we have got to learn from that. It is clear that the levels of collateral weren’t sufficient.

“You have got to ask questions as a regulator as to how much you do push companies. Quite often we are accused of putting too much burden on our regulated community.

“Given what had happened in movements in yields historically, the movements of 100 basis points seemed plausible, but pretty unlikely. As it happened, something much worse happened.”

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He added that TPR did not foresee the speed of the rise in yields at the end of September.

“It having happened, we recognise that we need to change the way the system works, we recognise that we need a more robust system for the future”, Mr Counsell admitted.

While the majority of schemes are in a better funding position than before the crisis, there is a small number of schemes that have lost money in the fall-out, the TPR said.

The Financial Conduct Authority (FCA), the UK watchdog overseeing the wider finance sector, weighed in that the turmoil exposed the vulnerabilities in the pensions sector.

The FCA’s chief executive, Nikhil Rathi, agreed with the TPR that there needs to be more data sharing from schemes system so regulators have a better idea of their funding positions.

He said: “There were certainly issues of speed of data sharing during this period.

“And I do think there is an issue around the financial acumen of some of the scheme trustees. The question is, do the trustees really understand what they are doing and the risks they are taking.”

It has called for more oversight over the sector as a whole.

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