European Policy Analysis Volume 2, Number 1, Spring 2016 | Page 42

Second Tier, Second Thoughts

they could tie in with the second Barroso
Commission’s discontentedness with the
fragmented nature of the market for these
products. The bulk of the latter remain to
be highly specific to the member states’
regulatory environment, tax rules, and
customer preferences—and thus niches
for comparatively smallish providers. The
Juncker Commission recently pinpointed
this fact with renewed zeal (European
Commission 2015a; 2015b). Moreover, in
a public consultation on the Green Paper
“Building a Capital Markets Union” much
like the stakeholder feedback exercise
analyzed here, one of the stakeholders
commenting favorably was the European
Stability
Mechanism
(European
Commission 2015c, 35–36).

In the name of consumer
protection,5 rather high administrative
costs of many 1st pillar bis,6 2nd, and 3rd
pillar pension plans had plausibly been
criticized for a while. With the very low
or even negative real interest rates brought
about by the financial repression which is
meant to safe the disbalanced currency
union, a crackdown on these costs
moved center-stage, and it was paired
by the Commission with the promise of
additional profits reapable via economies
of scale in a completed single market.

This attack on administrative costs
appears to be at odds with governments’
requirements for tax balance sheets.
Austrian and German employers, for
instance, who accumulate a pension pot

for their workforce are still required to
assume a return of 6% p.a. on these assets
at a time when Berthon et al. (2013) report
negative real returns over the last five
years for 10 out of 12 EU member states
analyzed, and even over 10 years for two
of them—before taxation. The German
Ministry of Finance plainly stated in
February 2014 (Schäfers 2015) that it had
no plans to lower this hypothetical rate of
interest below 6%, arguing that long-term
rates usually were much higher than the
current short-term ones. (At the time of
writing, German 30-year government
bonds yield less than 1%.) Squeezed in
between low interest rates and more
demanding regulatory requirements,
experts calculate that employers will have
to double their reserves for occupational
pensions by 2018 (Schäfers 2015).

Meanwhile, Solvency II (which is
the insurance sector’s equivalent to Basle
II in banking, that is, the EU’s major effort
in risk regulation) obliges insurers to fulfill
more demanding capital requirements,
and a conflict has arisen within the
Commission and the European Parliament
as to which providers of occupational
pensions these requirements also ought
to apply to under the principle of “same
risk—same rules—same capital.” German
Pensionskassen, for example, which at the
same time pay into a quite sophisticated
national insolvency insurance pool,
would quite probably be priced out of
the market by such a decision (Fischer

5

EIOPA’s mandate, among various other aspects, includes a leading role in consumer protection (cf.
Görgen 2011). In this context, the widespread ignorance of employees about their opportunities regarding occupational pensions (cf. Lamla and Coppola 2013) is striking.
6
1st pillar bis refers to elements of state pensions in the form of mandatory capital-based (defined-contribution) plans that are privately managed. These schemes are especially prominent in Central Eastern
Europe.

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