THE EUROPEAN COMMISSION S GREEN PAPER ON PENSIONS

Transcription

1 S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L THE EUROPEAN COMMISSION S GREEN PAPER ON PENSIONS Sheenagh Gordon-Hart Industry and Client Research Executive J.P. Morgan Worldwide Securities Services September 21, 2010

2 A Massively Challenging Regulatory Agenda Greater supervision Too big to fail, bank resolution and living wills More onerous capital and liquidity requirements Regulation of Hedge Funds and Private Equity Taxation Derivatives legislation OTHER AREAS TO BE ADDRESSED IN 2010/2011 MiFID review Corporate Governance Credit Rating Agencies Consumer Protection Remuneration guidelines in financial sector 1

3 New Regulatory Landscape Objective: to improve the prudential supervision of banks, insurance companies and investment firms A key structural element in response to the crisis EBA (European Banking Authority) ESMA (European Securities Markets Authority) EIOPA (European Insurance and Occupational Pensions Authorities) Plus a European Systemic Risk Board European Parliament expected to vote on the establishment of the new authorities this month Plan to be operational 1 January 2011 IMPACT Anticipate the authorities being granted specific powers in constitutive documents and also in future legislation (see AIFM)

4 Denmark Netherlands UK US Finland Sweden France Europe s Strategic Challenges: Pre-crisis problems now far worse Macro-economic and demographic trends in Europe Low fertility rates, twinned with longevity: inverting the population pyramid fewer in work paying higher taxes The average EU dependency ratio will increase from 27% to 53% by 2050 Germany, Spain, Italy and France will be most affected by this predicted trend, increasing by an average of 166% between 2000 and 2050 EU public debt at 60% of GDP in 2007, will rise to 80% in countries exceed the Stability and Growth Pact 3% GDP cap on budget deficits The average EU budget deficit as proportion of GDP: 0.8% 2007, 2.3% 2008 and estimating 5% for 2009 Public debt: GDP exceeds 100% in Italy, Belgium, Greece Ratio of population 65+ year olds to population of year olds Italy Spain Germany France UK Source: Eurostat Pensions as % of GDP Source: OECD

5 The European Commission s Green Paper on Pensions Towards adequate, sustainable and safe European pension systems A key review, published on July 7, 2010 Prompted by concerns on success (or otherwise) of Institutions for Occupational Retirement Provision (IORPs) Fuelled also by: Debate on solvency provisions for competitor insurance providers Damage to economic picture as result of financial crisis and muted prospects for growth Contains extensive consultation questions. Closing date on consultation is 15 November Widespread participation from industry is encouraged IMPACT Likely to generate heated discussion around solvency Potentially an opportunity to promote efficient savings schemes, e.g. pan-european 401(k); life-styling; LDI for consumers?

6 The European Commission s Green Paper on Pensions: Background Adequate and sustainable retirement income for EU citizens Pensions are an integral and important part of financial markets A number of (but not all) member states have pursued reforms Policy development to be underpinned by: The need to promote sound functioning of the single market Requirements of the Stability and Growth Pact Objectives of Europe 2020 strategy ( smart, sustainable and inclusive growth ) The recent financial crisis has magnified the severity of the looming demographic crisis Europe 2020 strategy targets: Higher employment rate for year olds Poverty reduction The Commission believes that pension reform and 2020 strategy will be mutually reinforcing

7 The European Commission s Green Paper on Pensions: Demographics Demographics: Milestone 2012 Europe s workforce begins to shrink Life expectancy has risen by 5 years in last 50 years and may rise by a further 7 years by 2060 Europe s fertility rate is big problem Europe s old age dependency ratio will double Unless people work longer, economic growth will decline and the pressure on public finances will be unsustainable By 2050 the only source of economic growth will be labour productivity (Source: The 2009 Ageing Report)

8 The European Commission s Green Paper on Pensions: Demographics continued.. In 2001 the European Council agreed the following strategy to deal with the demographic impact on public budgets Reduce Debt Rapidly Raise Employment Rates Reform Pension, Health Care And Long-term Care Systems The Green Paper commends many of the reforms undertaken thus far but note the public outrage in Greece at the imposition of emergency reforms and the current wave of industrial action in France Notably Italy managed to raise its pension age without noticeable public reaction

9 The European Commission s Green Paper on Pensions: Key Proposals and Questions Should the EU define what an adequate retirement might entail? Is the existing framework at EU level sufficient to ensure sustainable public finances? How can higher effective retirement ages be achieved? In which way should IORP Directive be amended to improve conditions for cross-border activity? Should the EU look at minimum standards on acquisition and preservation (of rights) and a tracking service for all types of pension rights? Should there be consistent EU regulation and supervision of funded pension schemes and products? What should an insurance-equivalent solvency regime look like?

10 The European Commission s Green Paper on Pensions: Conclusion Future adequacy of pensions depends on a combination of returns in financial markets and greater opportunities in the labour market Everyone should participate in the debate Citizens are also encouraged to participate with a Citizen s Summary it s not just about institutional participation Closing date on consultation is 15 November 2010 and the online questionnaire can be found at:

11 Questions? Please contact Sheenagh Gordon-Hart for further information:

12 This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including such client s subsidiaries, the Company ) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan. The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. J.P. Morgan s opinions and estimates constitute J.P. Morgan s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects. J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities Inc., J.P. Morgan plc, J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in Asia-Pacific, and lending, derivatives and other commercial banking activities are performed by JPMorgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing entities. This presentation does not constitute a commitment by any J.P. Morgan entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services. 11