Talking at the Corporate Adviser 2018 Summit, PensionsEurope chief executive Matti Leppala has warned European pension funds may fare worse as a result of Brexit.
However he says that the occupational pension industry in the UK faces a “soft Brexit” with “less drastic” challenges than many other sectors of the economy.
He says: “There is already cross border harmonisation on many pension issues. The Pension Fund Directive, which comes into force next year should ensure that UK legislation is in line with the EU.”
Leppala says that for the UK pensions industry the biggest Brexit threat was the subsequent impact on the wider economy, particularly in the event of no-deal.
He says: “The consensus is that Brexit will be bad for the economy. This could cause stock markets to fall, pushing down pension fund levels.”
“At the same time this could delay a tightening of monetary policy if the economy goes into recession. It could also cause currency fluctuations.”
This could have a impact on funding levels for pensions, Leppala warned.
Brexit presents specific challenges for European funds, Leppala says. One of the issues is the dominance of the UK in the asset management sector. Currently the UK accounts for 41 per cent of the European asset management sector.
Lappala points out that after the UK leaves the EU, this will alter the shape of the European pension market.
He says around 57 per cent of pension assets across Europe are currently in DB schemes; after Brexit this will fall to 19.7 per cent. In contrast the proportion of DC schemes will rise from 9 per cent a to 15.3 per cent of European pension assets.
“From a policy point of view DC starts to be more important after Brexit,” he says.
Lappala adds: “The UK has played in key role in stopping European solvency requirements which sought to view pension funds like other insurance-based financial products.
“There has been more of a focus on pensions as a social contract between employers and employees.” The UK he says has been an ally of the Netherlands, and to some extent Germany, in supporting this view.
“There may be some concerns on what the outcome of this may now be with the UK leaving the EU,” he says. The changing balance of pension assets will give more influence to both France and Germany. “The support for funded workplace pensions is of concern for many of us” he says.