IS CAPITAL MARKETS UNION THE ANSWER TO EUROPE’S 20 PENSION CRISIS?

urope needs deeper capital mar- CMU Action Plan in September 2015. However, Ekets to strengthen investment in much more needs to be done to have a fully the long term, including investment functioning, deep and integrated capital mar- into publicly listed property com- ket by 2019. With that in mind, last month the panies. These would help increase Commission announced its intention to double its efforts after consulting on the CMU mid-term broaden financing options in the EU, review with the key stakeholders. As part of this attract more foreign investment, fa- process, EPRA together with the Regulatory and cilitate cross-border investment and Taxation Committee submitted its input reflect- make the economy more resilient. ing the needs of the listed property sector and That is why Jean-Claude Juncker, emphasising its importance as an class to the President of European Com- investors. The Commission is expected to pres- mission, set out as one of its key ent its final CMU-Mid Term Review by July 2017. priorities the need to build a true There are many initiatives which have either Capital Markets Union (CMU) for all been completed or are already in the pipeline to Members of the . achieve the CMU’s objectives. In this article we will focus on Europe’s efforts to overcome its pen- Some 15 initiatives have been completed by sion crisis and the role the listed sector can play. the Commission since the publication of the

Solvency II CMU Mid-Term Solvency II takes effect Review Review 2016 2018

2015 2017 2019 CMU Proposed PEPP CMU Action Plan legislation in place

NEWS | 59 | 2017 Strong Long Term Performance

15-year annualised total return in local currency

9.0%

8.0% 7.8% 7.0%

6.6% 6.0% 21 5.0% 5.3% 5.4%

4.0%

3.0%

2.0%

1.7% 1.0%

0.0% Europe Europe Europe bonds Europe real Europe listed Inflation equities estate real estate

Sources: EPRA,Sources: FTSE,EPRA, FTSE, JP Morgan JP Morgan. Data as of: March 31, 2017 EPRA 1 Data as of: March 31, 2017 2013

Is europe on the track to overcome its pensions across the EU and overcome its mar- pension crisis? ket fragmentation. This should help unlock capital markets by providing a critical mass of EPRA believes that we all need to work smarter investments at a pan-European level which can CMU MID-TERM to provide Europeans with an adequate in- better support the long-term funding. come and decent living standards in retire- REVIEW: ment. This task is now particularly important The potential of a pan-European EPRA’S VIEW as demographic and labour market changes Personal Pension Product have put pressure on national budgets and The European listed property The Commission will soon propose a set of are challenging our national pension systems. sector needs: European rules to develop a true EU single It is therefore safe to say that the traditional • a more neutral and invest- market for personal pension products (PEPP). employment-based pension systems are not ment-friendly system This new initiative is being developed by a (the proposed Common prepared to overcome such challenges. This is close cooperation of public and private stake- Consolidated why the listed real estate sector has become holders. Various industry bodies from financial Bases (CCCTB)); increasingly important over the last few years, institutions, multinationals and trade unions to • more inward and intra-EU as the demand for solid long-term income consumer protection groups strongly support investments (Solvency II); producing investments is stronger than ever. the initiative. • a Europe which works The beginning of cross-border smarter to fill the pensions What could an attractive PEPP look like? So far, gap (European Personal defined contribution pensions all we know is that a PEPP might be introduced Pensions Products (PEPP)); across the EU in a form of a second personal pension prod- • an improved withholding One of the questions we should be asking our- uct regime, parallel to the national regimes. It tax refund (WHT) proce- selves is whether we can afford to continue should have standardised features consider- dure to boost cross-border investments. funding defined benefit schemes the way we ing the specific objective of a personal pen- Read EPRA’s response to the do. The European Insurance and Occupational sion product to provide for future retirement CMU mid-term review Pensions Authority (EIOPA) estimated in 2015 income, alongside flexible elements taking into consultation that aggregate deficits of European Defined account national specificities. Individual savers Benefit pension funds amount to EUR 1,200 will thus be able to make savings via personal billion under standard valuation basis. It is pension accounts which are portable and can therefore clear that it is the time to work together be moved from one provider or country to to overhaul the traditional pension regulations, another. > develop cross-border defined contribution

NEWS | 59 | 2017 European Listed Real Estate has much more to offer

22 Liquidity Efficient geographic and sector diversification

Quality of and quality of management

Governance, tranparency & oversight

Going concern status enables access to capital (Equity & )

Cost effectiveness

Real active management

Contribution to the community

In fact, EIOPA advised the Commission to con- wisely’ explains that future adequacy of pen- sider the following: sion provision depends not only on how much • Standardised information provision; individuals save and how early they start sav- • Standardised limited investment choices, ing, but also on their asset mix. Investing in the with one core “default” investment option, right range of assets can be as important as sav- where the investment strategy considers ing enough because of the very different long- the link between accumulation and de- term returns and diversification that are offered cumulation; by the different asset classes. • Regulated, flexible caps on costs and charges; We fully agree that it is important to set invest- • Flexible biometric and financial guarantees. ment objectives of PEPPs correctly, including The PEPP should also have a long-term per- its much-needed default investment option to spective in its investment policy, similar to the protect European savers. At the same time, we long-term nature of listed real estate, to better need to think of how we can enable them to reflect the long-term nature of retirement sav- receive high enough returns. And that is how ings. But what else needs to be considered in listed real estate can play an important role. order to deliver desired pension outcomes? Liquid investment assets with a strong dividend yield have the potential to help Europe over- Europe needs to consider the benefits come its pensions’ challenge. This would not of listed real estate to deliver desired only be beneficial for all stakeholders, from pension outcomes institutional investors to individual savers in The insurance sector’s recent ‘Blueprint for Europe, but could also increase the stability of Pensions: Saving enough, saving well, saving the financial markets.

NEWS | 59 | 2017