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The association welcomes that the Commission is looking into the Net Stable Funding Ratio (NSFR) rules which are also part of the requirements that lead to the cash preferences of banks which are detrimental for pension funds and their service providers.

Certain elements of the CRDIV bank capital rules have strong opposing incentives for banks to only receive variation margin in cash to support non-cleared OTC derivatives positions. More precisely, the leverage ratio and net stable funding ratio (NSFR) rules could force pension funds to post Variation Margin in cash only, and not permit other assets for collateralizing non-cleared derivative trades. This directly contradicts the EMIR policymakers’ objective and would force pension schemes to have to post variation margin in cash for non-cleared trades as well. It would introduce disproportionate cost and risk to EU pensioners.

In addition the leverage ratio and NSFR rules only allow cash Variation Margin (VM) to offset any positive mark-to-market exposures borne by a bank on OTC derivatives positions. Non-cash VM, even high quality government bonds, are not permitted to offset the mark-to-market exposures. As a result, many banks are now restricting OTC derivatives trades to those that are collateralised with cash VM only, where previously banks would also accept high quality government bonds as VM.

The Capital requirements for banks, imposed by Basel III and CRDIV rules, have had also a negative impact on market liquidity, especially in the repo market. In fact, CRDIV and CRR restrict the liquidity on the repo market.

We suggest policymakers to consider allowing high-quality government bonds with appropriate haircuts to offset the mark-to-market exposures of OTC derivatives in leverage ratio and NSFR calculations and to exempt pension funds from posting collateral in non-cleared transactions until non-cash solutions for posting collateral are developed.

You can find the response here.

Janwillem Bouma, Chair of PensionsEurope said:

"PensionsEurope regrets the UK's decision to leave the European Union but we respect the outcome of the referendum. 

Pension funds across Europe now need to have a clear view of what will happen over the next few years to provide much-needed certainty to pension funds and pension savers. The UK Government and EU institutions must work together to develop a clear plan and timetable of next steps. 

Pension funds invest in markets across Europe, and it is important that this can continue to be the case. We need this to support pension funds and for the security of millions of pension fund members and pensioners across Europe.

The UK Pensions and Lifetime Savings Association remains an important and valued member of PensionsEurope."

In its paper, published on 19 April 2016, PensionsEurope provides several examples of the lack of reciprocal recognition of pension funds and the problems with the withholding tax (WHT) refund processes. PensionsEurope calls on policymakers to remove WHT barriers to cross-border investments in the EU.

Janwillem Bouma, Chair of PensionsEurope:

- "The obstacles with the WHT refund processes pose a major barrier to cross-border investments in the EU and to build the Capital Markets Union. In order to boost the economic growth in the EU, PensionsEurope calls on the EU Member States and the European Commission to remove all the WHT barriers to cross-border investments. This means that the EU Member States shall respect the case-law of the Court of Justice of the European Union, reciprocally and automatically recognize pension funds, and simplify their WHT processes."

A large number of practical problems with the WHT refund processes still exist in spite of the EFTA judgment “Fokus Bank” (2004) and the case law of the Court of Justice of the European Union i.e. “Denkavit” (2006), “Amurta” (2007), “Aberdeen” (2009), and “Santander” (2012). The above-mentioned cases have shown that the WHT practices in many EU Member States are discriminatory with respect to dividends earned by foreign funds, and therefore, contradicting the European law.

Matti Leppälä, Secretary General/CEO of PensionsEurope:

- "The WHT refund processes are complex, expensive, and long-lasting. Often they can last even 10 years and cost half of the expected refunds, as costly tax advice in foreign languages is needed. Since the legal outcomes are uncertain, given that the legal recourse involves several levels of jurisdiction, often pension funds do not assert their justified reclaims. Therefore, PensionsEurope calls on the EU Member States to ensure simple, transparent, and inexpensive WHT refund processes."

PensionsEurope replied to the European Commission consultation on long term and sustainable investments.

In its response to the consultation, PensionsEurope said that European pension funds recognise that with their long-term investment horizons, a key consideration must be to look both at the returns on their investments and any associated risks. The variety, in both type and scale, of pension funds does lead to a large diversity of responsible investment policies. Social returns are not a substitute for financial returns, but many funds express an ambition to generate social returns without compromising financial returns.

PensionsEurope noted that pension funds should retain their freedom of investment, as to adhere to their own investment beliefs and policies. Only then can they achieve their core objective: to provide adequate pensions at relatively low costs. European initiatives or regulation should take into account the characteristics of pension funds as institutional investors in order to stimulate investments and turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion.