ECB discusses ageing

In its Occasional Paper 51 - Macroeconomic implications of demographic developments in the Euro area, the European Central Bank looks at the impact of ageing on long term growth rates, labour market policies, financial markets and public finance. The thrust of measures proposed is not surprising:

to increase labour participation by closing a gender gap, raising average hours worked and raising the effective retirement age,

to prepare for a more important role of financial intermediation in retirement provision, taking into account an expected further decline in the real equilibrium interest rate,

to take measures against public expenditures rising above 3% of GDP in most countries in the wake of increased pensions and healthcare costs, especially by increasing the importance of (partially) funded retirement systems,

to monitor the impact of ageing on monetary policy via the aggregate savings rate and real interest rates.

Disquietingly, the ECB does not fully discount the theory that ageing will lead to a decline in asset prices due to increased unsaving of retirees - it only provides several technical caveats. Food for thought indeed!

Liechtenstein joins the fray [FL]

On 23 August, the Liechtenstein government has decided to join the competition to become the most favourable location for pan-European pension funds by adopting a bill to transpose the Pensions Directive into national law. The report 78/2006 should become available here shortly. It is expected that the bill will become law on 1 January 2007, together with the attached regulation which is in the final stages of being drafted.

Demographic leporello [CH]

Swiss think-tank Avenir Suisse has published a comprehensive leporello (a.k.a. leaflet) about the demographic challenges in Switzerland and Europe. It is also available in French.

Netherlands as pensions location? [NL]

According to a story in IPE, the three main Dutch pensions associations have called on political parties to position the Netherlands as the country of choice for European pension funds. Here is the position paper in Dutch.

This statement is important for two reasons. 1) In the Dutch self-perception, the regulatory framework is insufficient at this point to qualify as a country of choice, as opposed to Ireland, Luxemburg - and probably Liechtenstein, we might add. 2) The most important players in the most important continental pensions market recognise the importance of that status, and, implicitely, of the market.

More sustainable Austrian pensions [AU]

Today, NZZ has an article (not available online) referring to an assessment of the recent triad of pension reforms in Austria, published by the Austrian National Bank. (The article is likely to appear in English here soon, too.)

In essence, the authors conclude that the reforms have improved fiscal sustainability in Austria. The most important factors to that end were - unsurprisingly - higher average pension age and lowered pensions.

Transposition issues in Finland [FIN]

Nordic Region Pensions & Investments News had an informative story on the debate about the Pensions Directive transposition in Finland (and other countries), which is evidently in place, albeit to a minimalistic extent. It seems however that the debate is far from concluded, thus modifications to the transposing legislation are to be expected within the year.

XBRL top priority in CESR / SEC cooperation

The recently published work plan of the regulatory dialogue between the European CESR and the US SEC consists of three main topics:

implementation of IFRS and US GAAP by internationally active issuers,

modernisation of financial reporting and disclosure, and

discussion of risk management practices.

While the first and the third bullet point are evidently crucial and as such unsurprising topics, the middle one is noteworthy. The world's most influential regulators join forces to promote the use of interactive data in financial reporting. Interactive data is SEC parlance for XBRL.

Mandatory pensions in Ireland? [IE]

(IPE) As indicated earlier, the Irish Department of Social & Family Affairs has now come forward with the report "Special Savings for Retirement".

At first blush the report appears to be a valuable comparative analysis of policy options, deserving of a closer look. It is not entirely clear however what the substantive recommendation would amount to, even though it appears to include a new mandatory supplementary component. But this constructive ambiguity is probably part & parcel of the political process in Ireland, which is expected to be advanced by the arrival of a subsequent Green Paper on pensions, due within a year's time.

No Prudent Investors in Switzerland? [CH]

In Monday's edition, NZZ had an article advocating the introduction of the prudent investor rule to Swiss pensions regulation, thereby abolishing the current rules prescribing fixed limits per asset class. This proposal is in line with the recent criticism of Swiss regulations by the IMF. While it is true that the strict limits can be dispensed with by IORPs declaring their specific purpose, the article introduces a very valid argument: IORPs which operate within the boundaries of those limits will typically not fulfill their fiduciary duties because their investments are not tailored to their individual economic requirements - they are "only" in line with legal requirements. Therefore these legal limits are inherently contradictory to the purpose of the regulation.

Incidentally, the Prudent Investor is not only advocated by Messrs. Skaanes & Hauser in conjunction with the IMF, but also by the Pensions Directive, of course.

Accounting for Pensions [UK]

The Economist has a summary of the recently published Annual Survey 2006 of Accounting For Pensions UK & Europe by actuaries Lane, Clark & Peacock. Unfortunately, the summary only covers the British part of the survey, which continues the proud tradition of differentiating between the UK and "Europe".


LCP has surveyed the component firms of the DJ STOXX 50 index. While the disclosure quality has risen overall, it is not yet at the same level as the UK's, which has been substantially improved following a recent appeal by financial analysts based in London. A similar appeal obviously is required at a pan-European level now! The common denominator of the survey's findings is that despite of a considerably more narrow basis of reporting standards (from 12 sets down to 4), the amount & quality of information vary as widely among the sample as the material information itself, as can be seen from the interesting table above (click to enlarge). Strangely though, an entire section of the report is dedicated to to the analysis of an unadjusted corporate average deficit per country. This ratio does not seem to have any relevance whatsoever.