Like most pension markets, Belgium has taken a knock from the global downturn. Figures from the Belgian Association of Pension Institutions (ABIP/BVPI) reveal an average return of -7.8 per cent in the first half of 2008. However, the damage has been limited and this is largely down to a combination of historical diversification and what could sympathetically be called a low-risk, traditional approach to investing.
“Anything that happens in the US will affect us to some extent, in terms of how it affects stocks,” says Philip Neyt, chairman of the ABIP/BVPI. “But, indirectly, in terms of credit exposure for example, the effect on Belgian pension funds has been relatively marginal. This is partly because, historically, Belgian pension funds have been among the most diversified and they have also been ‘traditionally’ managed. One might characterise this as unprofessional, but on the other hand this conservative approach is perhaps quite prudent,” adds Mr Neyt.
What concerns those in the Belgian market most is, on the one hand, the slower than expected take-up of the Organisation for Financing Pensions (OFP) – introduced last year and designed to attract foreign companies to set up pension funds in the country; and confusion about the Institutions for Occupational Retirement Provision (IORP) directive on corporate governance, on the other.
“I think the fact that, so far, so few foreign companies have taken advantage of OFP has a lot to do with costs and the amount of research that needs to be conducted before making such a move,” says Watson Wyatt’s managing consultant Paul Logghe. “People are still unfamiliar with the regulation, and this engenders fear and hesitancy. These have been stumbling blocks to companies committing to a pan-European fund. I think that this is the reason why the OFP has not taken off as quickly as the Belgian government might have hoped.”
This view is echoed by the secretary-general of the European Federation for Retirement Provision (EFRP), Chris Verhaegen, who says: “For the Belgian market, it is important that the pension fund directive remains stable so that the OFP is allowed to develop. In a small country, one must go cross border to grow. And I think that, as far as the Belgian market is concerned, that is crucial”.
The head of institutional business, Benelux, for Barclays Global Investors (BGI), Marko van Bergen, believes that Belgium’s ongoing constitutional crisis may have also played a part in the so far muted reception the OFP has received. “Let’s put it this way: I don’t think that the political crisis in Belgium has been beneficial to getting the most out of the OFP. I think a lot of large firms potentially looking at the OFP as a way of structuring their pension funds and having their pension funds based in Belgium have widely welcomed it. But, from my personal perspective, it has not been so successful given the geopolitical risks.”
|
This is a suggestion roundly dismissed by Belgians in the sector. “Maybe this has unnerved some foreign companies, but I haven’t come across it myself,” says Mr Logghe.
“Perhaps some people are impressed with this,” says the EFRP’s Ms Verhaegen, “but I am Belgian, and for us this is nothing new; it’s been that way for 20 years”.
“What really concerns us more,” she says, “is the doubt that has been sown by certain groups about the suitability of the IORP directive”. Ms Verhaegen says that, in the run-up to Solvency II, the insurance lobby has, wherever possible, done all it could to spread doubt about the IORP among a large number of companies that had already commissioned or undertaken feasibility studies on the road to setting up pan-European funds. “Insurers will not pass up any opportunity to demand that IORP directive be amended in order that Solvency II principles be applied to pension funds. They have succeeded to the extent that some market participants have now become unsure. This is damaging the market, rather than any political instability,” she adds.
The twin challenges of the OFP and IORP will continue to dominate the Belgian pension market for the foreseeable future. “In a sense, because of the OFP, everything is new in Belgium,” says Mr Neyt. “It has changed the entire legal framework and associated governance, and this means that pension funds need to organise themselves differently. We should not just comply with new regulation because it is incumbent on us to do so. It should also be perceived as encouraging transparency, and improving communication and governance.” he added. “Of course it will require more manpower and organisation but I think that the tendency to become more critical, to ask more questions, is not necessarily bad.”
KEY FACTS
- The average return posted by Belgian funds for the first half of 2008 was -7.8 per cent
- Belgian pension funds were affected by the US housing market crisis but their consistent prudence has meant the markets have stabilised
