Call for pension funds to be more efficient through asset pooling

“Assets in pension funds must grow substantially and pension funds must become more efficient. While the EU has set itself the task of reforming the internal market for pension provision, a single market is a distant dream but, in the meantime, much can be done to minimise the inefficiencies. Currently in Europe, each member state makes its own rules for pension funds thus creating a highly fragmented and regulatory environment. This has resulted in a large number of relatively small inefficient pension funds. Increased costs arise from the duplication of administration and asset management functions. The impact on the investment return leads, ultimately, to smaller pensions and funding problems."

Pat Wall continued:

“Some very significant issues need to be tackled before a true single market in pension provision can emerge in the EU. In the meantime, the current national based approach will predominate presenting a challenge to pension trustees and asset managers to be as efficient as possible. These efficiencies lie in the centralisation of pension administration and pooling of pension funds assets.

Asset pooling offers a means of bringing a number of pension funds together to create economies of scale through elimination of duplicated servicing costs and more effective asset management. Against the background of a fragmented market for pensions, asset pooling represents an important tool for tackling the problems of scale. If a number of pension funds with similar investment objectives can pool their assets, the savings are significant. Pooling can be achieved either on a virtual basis by creating a separate regulated ‘entity’ such as the Irish Common Contractual Fund (CCF), UK PFPV, Luxembourg FCP, Dutch FGR or Belgian OFP.

However, in order for any real efficiencies to be achieved, the EU Commission must continue to strive towards a fully harmonised regulatory environment as well as the elimination of tax discrimination by member states”.