European supervision of pension funds: purpose, scope and design
This paper offers recommendations for pension fund regulation at a European level. The importance of adequate old age provisioning and regulation is self-evident in the current era. The leitmotiv is the upcoming demographic upheaval. Forward looking, the ageing process will challenge the financing of pension benefits, reaching a climax twenty years from now when ‘babyboom’ generations will have retired.
As pay-as-you-go pension systems might become unsustainable, many countries need to rely more on pre-funding pension commitments. As a consequence, accumulated pension savings rise relative to economic production, and volatility in asset and liability values will have an increasing impact on domestic income and expenditure. In this context, the need for well thought-out regulatory and supervisory policies rises markedly across Europe.
Furthermore, the European Pensions (IORP) Directive (European Commission, 2003) aims to stimulate the development of an internal market for occupational pensions. Mobility of corporations, employees, and pension funds is expected to surge in the next decades. Improved European supervision may serve as a catalyst for an orderly growth of the internal market. Finally, uniform regulatory frameworks have been introduced in other parts of the financial sector as well, in particular the global Basle III accord for banks and the European Solvency II regime for insurance companies. These frameworks promote a level playing field across sectors and countries.