BELGISCHE VERENIGING VAN PENSIOENINSTELLINGEN ASSOCIATION BELGE DES INSTITUTIONS DE PENSION BELGIAN ASSOCIATION OF PENSION INSTITUTIONS

Green Paper on long-term financing of the European economy

20130625 - Green Paper LTI - Response BAPI - Final.docx.doc

Introduction:
The Belgian Association of Pension Institutions (BAPI) is a non-profit organisation established in 1975 to unite Belgian IORPs (Institutions for Occupational Retirement Provision) and administrators of sector pension plans. The task of BAPI is to represent all Belgian non-profit organisations that administer or provide occupational pension schemes outside the social security system based on capitalisation techniques. BAPI acts as a spokesperson and represents its members in all matters concerning supplementary pension promises in the second pillar. In consultation with the social partners and government leaders, policymakers, members of parliament, federal public services, administrations, regulators and others, the objective of BAPI is to cooperate in developing a legal and regulatory framework to elaborate sustainability the collective supplementary pension provisions that its members administer or manage on behalf of employees, self-employed persons and civil servants in an occupational context, so as to address the challenges of an ageing population by providing an essential top-up to the state old age pension. At a European level, BAPI is represented in AEIP (European Association of Paritarian Institutions), the PensionsEurope (European Federation of Retirement Provision) and various working groups involved in supplementary pension. Contact: Karel Van Gutte - Secretary-General
Bd. Auguste Reyerslaan 80 Bruxelles B 1030 Brussel T: +32 2 7068545 F: +32 2 7068544 karel.vangutte@pensionfunds.be www.pensionfunds.be

General comments:
BAPI highly welcomes this consultation on the Green Paper on long-term financing of the European economy. Institutions for Occupational Retirement Provisions are long-term investors, due to the match with the long duration and maturities of their liabilities. As such they can play a very important role in long-term investment (LTI) enhancement.

bd. Auguste Reyerslaan 80 | B Bruxelles 1030 Brussel | T + 32 2 706 85 45 | F + 32 2 706 85 44 info@pensionfunds.be | www.pensionfunds.be | ING 310-000605833 | BTW BE 0415.047.855

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Questions and answers:

Not all questions are relevant for IORPs. We only commented those questions where policies could have an immediate and strong impact on retirement provisions, being questions 1), 6), 7), 8), 9), 10), 13), 20), 24), 25) and 30).
1. The supply of long-term financing and characteristics of long-term investment

1) Do you agree with the analysis out above regarding the supply and characteristics of longterm financing? Yes, we agree although we believe long-term financing is either over a time period of more than 10 years instead of more than 5 years. 2) Do you have a view on the most appropriate definition of long-term financing?
2. Enhancing the long-term financing of the European economy A. The capacity of financial institutions to channel long-term finance

Commercial banks 3) Given the evolving nature of the banking sector, going forward, what role do you see for banks in the channelling of financing to long-term investments? Development banks 4) How could the role of national and multilateral development banks best support the financing of long-term investment? Is there scope for greater coordination between these banks in the pursuit of EU policy goals? How could financial instruments under the EU budget better support the financing of long-term investment in sustainable growth? 5) Are there any other public policy tools and frameworks that can support the financing of long-term investment? Institutional investors 6) To what extent and how can institutional investors play a greater role in the changing landscape of long-term financing? We welcome the idea of LTIF, which makes infrastructure projects accessible for the smaller and medium sized IORPs by bringing in the so needed knowledge and expertise. These LTIF might also help the smaller and medium sized IORPs to benefit from economies of scale by pooling assets for different types of risks.

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7) How can prudential objectives and the desire to support long-term financing best be balanced in the design and implementation of the respective prudential rules for insurers, reinsurers and pension funds, such as IORPs? The preliminary results of Quantitative Impact Study in the context of the review of the IORP Directive have shown that the current plans to introduce Solvency II type of funding requirements for IORPs would highly impact the IORPs nature of long term investors. This draft of a new regulatory framework will introduce a shift to more risk adverse behavior and short-termism in order to reduce volatility and to avoid additional funding from the sponsors. The whole concept assumes the IORP is always taking all risk although in Belgium it is rather rare a IORP takes any risk given the IORP does not take any commitment and is fully backed by the sponsor undertakings. The current ideas about the quantitative elements of the new IORP Directive totally contradict the search for long-term funding. It does not take into account the long-term investors nature of a IORP and a IORPs liabilities of long duration. This topic is under further discussion at different forums with different stakeholders. 8) What are the barriers to creating pooled investment vehicles? Could platforms be developed at the EU level? IORPs can play a greater role in the need for long-term financing. To do this in a cost effective way, they should be able to do this in a regulatory environment which is stable over the longer-term, both in terms of tax as in terms of prudential rules. 9) What other options and instruments could be considered to enhance the capacity of banks and institutional investors to channel long-term finance? The combined effect of regulatory reform on financial institutions 10) Are there any cumulative impacts of current and planned prudential reforms on the level and cyclicality of aggregate long-term investment and how significant are they? How could any impact be best addressed? The reform of the financial sector, higher liquidity requirements for banks, additional capital charges for insurers and pension funds, will shift investments to fixed income securities in order to minimize risk. Sponsors might get difficulties to get access to liquidity which will shift their focus on profit generation and cost reduction. This puts the development of occupational pension plans under strain. In the end we will end up with fewer assets for the financing of long-lived capital goods. In order to break this vicious circle, we should encourage risk taking and install the appropriate vehicles for risk measurement, risk management and risk control, respectively to know but also to avoid and definitely to protect in case it would go wrong.
B. The efficiency and effectiveness of financial markets to offer long-term financing instruments

11) How could capital market financing of long-term investment be improved in Europe? 12) How can capital market financing of long-term investment be improved in Europe? What should change in the way market-based intermediation operates to ensure that the financing can better flow to long-term investments, better support the financing of longterm investment in economically-, socially- and environmentally- sustainable growth and ensuring adequate protection for investors and consumers?
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13) What are the pros and cons of developing a more harmonized framework for covered bonds? What elements could compose this framework? We welcome the idea of a comparable framework for covered bonds, which can make i.e. infrastructure projects accessible for the smaller and medium sized IORPs by bringing in the so needed knowledge and expertise. The principle of covered bonds might also help the smaller and medium sized IORPs to benefit from economies of scale by pooling assets for different types of risks. 14) How could the securitisation market in the EU be revived in order to achieve the right balance between financial stability and the need to improve maturity transformation by the financial system?
C. Cross-cutting enabling long-term saving and financing

15) What are the merits of the various models for a specific savings account available within the EU level? Could an EU model be designed? Taxation 16) What type of CIT reforms could improve investment conditions by removing distortions between debt and equity? 17) What considerations should be taken into account for setting the right incentives at national level for long-term saving? In particular, how should tax incentives be used to encourage long-term saving in a balanced way? 18) Which types of corporate tax incentives are beneficial? What measures could be used to deal with the risks of arbitrage when exemptions/incentives are granted for specific activities? 19) Would deeper tax coordination in the EU support the financing of long-term investment? Accounting principles 20) To what extent do you consider that the use of fair value accounting principles has led to short-termism in investor behaviour? What alternatives or other ways to compensate for such effects could be suggested? Behaviour is highly sensible to those elements impacting the P&L. Corporate governance arrangements 21) What kind of incentives could help promote better long-term shareholder engagement? 22) How can the mandates and incentives given to asset managers be developed to support long-term investment strategies and relationships? 23) Is there a need to revisit the definition of fiduciary duty in the context of long-term financing?

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Information and reporting 24) To what extent can increased integration of financial and non-financial information help provide a clearer overview of a companys long-term performance, and contribute to better investment decision-making? We should avoid new prudential regulation for IORPs focusses on short term financial information only. The funding of long duration liabilities should be against the sponsors wealth on the longer term. An underfunding for a IORP with only long duration liabilities and a strong sponsor might be less risky than a small overfunding of a IORP where affiliates are all close to retirement age and the sponsor undertaking is in a very weak position. 25) Is there a need to develop specific long-term benchmarks? Long-term benchmarks would be very helpful to judge the funding level and the sponsor backing for IORPs. Long-term benchmarks might also be helpful for the management of a pension fund to measure their long term investment strategy.
D. The ease of SMEs to access bank and non-bank financing

26) What further steps could be envisaged, in terms of EU regulation or other reforms, to facilitate SME access to alternative sources of finance? 27) How could securitisation instruments for SMEs be designed? What are the best ways to use securitisation in order to mobilise financial intermediaries' capital for additional lending/investments to SMEs? 28) Would there be merit in creating a fully separate and distinct approach for SME markets? How and by whom could a market be developed for SMEs, including for securitised products specifically designed for SMEs financing needs? 29) Would an EU regulatory framework help or hinder the development of this alternative non-bank sources of finance for SMEs? What reforms could help support their continued growth? 30) In addition to the analysis and potential measures set out in this Green Paper, what else could contribute to the long-term financing of the European economy? To gain confidence in long-term projects a stable regulative environment is key.

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