BVI sees the need for urgent action by the new government on pension provision and location policy
- Sustainability should be understood as financing the transformation
- Include the competitiveness of European asset managers as an EU regulatory objective
The German Investment Funds Association BVI sees the coalition agreement between the governing parties as a good starting point for improvements to old-age provision and for a more active policy to promote Germany as a location for the industry. ‘The government's plans for old-age provision are heading in the right direction, but they are also urgently needed,‘ said BVI’s CEO Thomas Richter at the press conference. ‘The politicians seem to be serious about restructuring the pension system.‘ In addition, according to Richter, there are signs of more political commitment to Germany as a financial centre. The coalition agreement, for example, advocates the location of the EU money laundering authority in Frankfurt, thereby backing up a goal of BVI. The BVI appeals to the Federal Government to end German lethargy over past years in regard of location policy and to support Germany more strongly as the financial centre within the EU, to prevent Frankfurt from losing the race against other locations such as Paris.
Fund savings plans for old-age provision should be recognized in law
The BVI believes that the coalition's plan to introduce a component covered by the capital markets in the funding of the statutory pension is an appropriate tool to reduce the increasing dependence of the pension system on tax subsidies in the medium term. However, other than start-up financing from public funds the coalition agreement leaves other steps open. The BVI proposes that the coalition follow up the concept of an equity-based pension according to the Swedish model in the first pillar of the German pension system. According to this model, the capital covered share of the state pension is financed by regular contributions, and private funds are offered alongside the state-organised fund. Regarding privately funded old-age provisions, the coalition parties envisage a thorough examination of plans for a state-organised fund. Richter commented: ‘The review is urgently required to ensure that no competition-distorting intervention in the market takes place. We reject the idea of state funding in privately funded old-age provision.‘ The BVI welcomes that the coalition will review the legal recognition of private investment products with higher returns and calls for fund savings plans to be considered as a tool for old-age provision. In addition, the grandfathering agreed for the 16 million Riester contracts should be supplemented by a flexible premium guarantee to enable Riester savers to gain higher returns.
Align Taxonomy on scientific knowledge
In determining what is ‘sustainable’, the taxonomy and the Disclosure Regulation are of limited use. They are primarily intended to create transparency, but do not provide a clear answer as to which products can be marketed as sustainable. The BVI is therefore committed to standardising the minimum requirements for sustainable products throughout the EU without harming competition between different ESG approaches. The current debate on the inclusion of nuclear energy and natural gas in the taxonomy shows how difficult this can be to achieve. Thomas Richter comments: ‘It is not the task of the fund industry to decide whether nuclear energy or natural gas are sustainable. However, it is important to maintain the taxonomy’s function as a benchmark for the assessment of sustainability. Therefore, taxonomy should be based strictly on scientific findings and, in case of doubt, exclude controversial topics.‘ According to Richter, sustainability should generally be understood as a common denominator based on scientific findings and international agreements. Another key question for the assessment of sustainability is whether sustainable funds are meant only to finance a green niche or to enable the transformation of the entire economy. ‘Measured against the 'EU Green Deal' and governmental sustainable finance strategies, the financing of transformation is the overarching political goal,‘ says Richter. Therefore, sustainability is not a fixed state, but in evolution, he adds. Sustainable funds must be allowed to continue to invest in companies with currently poor sustainability scores, in order to drive the companies’ future change through shareholder engagement.
In Germany, this is even complicated by BaFin’s guidelines for sustainable investment funds, which require sustainable funds to comply with several minimum exclusions. In the BVI's opinion making decisions on the sustainability of energy sources is not within the remit of financial supervisory authorities. Richter: ‘BaFin is accepting, eyes wide open, that funds with sustainability features will be set up in Luxembourg or Ireland, because its rules only apply to German funds.’ The BVI urges against a specific German approach to sustainability requirements and instead for active participation to help shape EU regulation at all levels.
The EU is itself an obstacle to Capital Markets Union
Brexit also intensifies competition in financial market regulation. That is why the BVI supports the Capital Markets Union (CMU), which, however, has hardly made any headway since its launch in 2015. The BVI welcomes the project, since it is the task of asset managers to bring together the supply and demand of capital across borders. Richter comments: ‘However, for years the EU itself has been preventing the success of the Capital Markets Union, primarily through mistaken consumer protection.‘ One of the biggest obstacles for investors to invest in companies in Europe is the multitude of rules that are well-intentioned but poorly made. These include the requirements for PRIIPs information documents with their warnings, provoking the erroneous impression that open-ended property funds, for example, are ‘toxic‘. Above all, the implementation of the multitude of EU rules burdens the fund industry with high costs – money that is no longer available for investment, for example, in further digitalisation or the development of markets. The BVI therefore calls for EU financial market regulation in the future to be aligned with global challenges. This includes anchoring the global competitiveness of European asset managers as a specific regulatory objective to be taken into account, in addition to consumer protection and financial market stability, when EU legislators and regulators make decisions.