Q&A: Natalie Tuck

POMERANTZ MONITOR | SEPTEMBER OCTOBER 2021

By The Editors

The Monitor recently spoke with Natalie Tuck, Editor of European Pensions, a highly authoritative information source for pension decision makers.

Monitor: What are some of the major hurdles facing European pension schemes today?

Natalie Tuck: The sustainability of pension systems, amid Europe’s ageing population, is a major challenge across the continent. According to data from Eurostat, in 2020 the percentage of those aged over 65 was 20.6%, an increase of 3 percentage points since 2010. This will only increase over the coming years, putting added pressure on public pension systems. Institutions for Occupational Retirement Provision (IORP) schemes are seen as one solution to ease some of that pressure. Defined benefit occupational schemes have their own funding problems, which is why we are seeing a gradual transfer to defined contribution systems in Europe – the Netherlands is in the process of transitioning. However, this passes the burden of sustainability onto individuals, who now need to make sure they save enough for retirement – yet another problem for the industry to solve!

M: What are the current hot topics in regulatory and legislative issues?

NT: Sustainable finance is a key policy area for the European Union and, as a result, it has introduced a package of legislative measures to achieve its objectives. In July this year, the European Commission published its new Sustainable Finance Strategy, which includes several proposals that will impact the pensions industry. For example, it detailed proposals to develop reporting obligations under the Sustainable Finance Disclosure Regulation (SFDR), a regulation that applies to IORPs, to include more reporting on the decarbonization of financial products and social factors. The Commission also proposed changing the prudent person rule under the key pension legislation, the IORP II Directive, to require pension funds to consider participants’ sustainability preferences in investment decisions. In addition, the Commission may make it mandatory for pension schemes to consider the non-financial impact of investment decisions on ESG factors. While the industry is largely supportive of the changes, the industry association, PensionsEurope, is calling for proportionality in the Commission’s approach to IORPs, which greatly vary in size.

M: How does cross-border pension pooling work?

NT: Pension funds have several options when it comes to cross-border pension pooling. They can create their own cross-border IORP scheme, join a cross-border master trust, or companies can pool their pension fund assets through common investment funds. The first two are facilitated through the IORP II Directive introduced in 2016 but have actually been possible since 2003, when the first IORP Directive was introduced. These schemes, which can be defined benefit or defined contribution, must comply with the local social and labor laws, and taxation rules, of the country they are offered in. For example, if a cross-border fund is based in country A (home state), but operates in countries B, C and D, it would be necessary to create specific national compartments complying with the local laws and rules of each country. The latter option of pooling assets through common investment funds, is more of a lite touch option to pension pooling. In this case, companies have the option to invest assets from their pension schemes in different countries alongside each other in a common investment fund. There are several tax transparent vehicles that can be used, such as Ireland’s Common Contractual Fund (CCF) or the Luxembourg domiciled Fonds Common de Placement (FCP), among others.

M: How do European pension funds see litigation as a vehicle for asset recovery after incidents of securities fraud?

NT: European pension funds are increasingly turning to the law as a way to recover assets lost due to securities fraud. Your own Managing Partner, Jeremy Lieberman, recently explained in a podcast with European Pensions, that having watched their US counterparts receive compensation whilst they suffered only losses, European pension funds realized that engaging with companies on this wasn’t working. To quote Jeremy, whilst many European institutional investors “don’t want to put their head above the parapet,” that attitude is now changing, driven by the necessity to recover financial losses. There’s also strength in numbers, and many pension funds are joining class actions and multi-claimant cases, and in some instances, acting as the lead plaintiff.

M: What is the most significant story that you have covered so far on the pension beat?

NT: The introduction of the freedom and choice pension reform in the UK market, which was introduced in April 2015. It was a huge shock to the industry when it was announced by then Chancellor George Osborne in March 2014, as there had been no leaks about it beforehand. The industry was given one year to prepare for the changes, which completely revolutionized the decumulation market in the country. Savers went from, in most cases, having to purchase an annuity upon retirement, to having the freedom to choose between an annuity, drawdown or to take all their cash at once.

M: How do ESG and equity inclusion for women and minorities rank as concerns for European pension funds?

NT: Pension funds in the Nordics lead the way when it comes to ESG considerations, with many now publishing sustainability reports alongside their annual reports detailing the work they do in this area. However, a lot of the focus is on the ‘E’ (environmental) part of ESG and although progress is being made on the equity of women, there is still a long way to go. That being said, I have noticed the issue rising up the agenda, from pension funds pushing for greater female board representation within their investee companies to looking at ways to close the gender pension gap that so often affects their own scheme members.

M: What inspires you most in your work each day?

NT: One of the reasons I became a journalist is because I get to do something different, learn something new and speak to different people every day. As a pensions journalist I’m fortunate to write on a hugely diverse topic; one day I could be covering class actions, or ESG investment topics, and the next I might be writing about diversity or pensions inadequacy. I’m particularly inspired by the passion of those working in the pensions industry, who strive for the best outcomes for pensions scheme members.

M: Arsenal or Manchester United?

NT: Manchester United – hopefully we will be in with a chance now that Cristiano Ronaldo has returned to Old Trafford.