Wednesday

21st Nov 2018

Investigation

How a US firm pushed for EU €2.1trn pension fund

The European Commission is about to create a private pension fund, worth €2.1trillion - justifying their decision by pointing to the increasingly large and more elderly European Union population.

This arrangement, which was absent from the European Commission president's list of official top 10 priorities in 2015, will impact on some 240 million savers.

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  • There are some 240 million potential savers for the fund in the EU (Photo: Drriss & Marrionn)

The PEPP (Pan-European Personal Pension Product) will be a private, portable, pension product across EU member states.

It follows an idea launched by the US financial services corporate giant BlackRock, the world's largest asset fund manager that built some two-thirds of its $6trn empire on pensions.

Headed by Larry Fink, BlackRock back in 2015 proposed the creation of a "cross-border personal pension fund".

BlackRock wrote, in a paper, that the EU should be "reviewing demand for, feasibility and key features of a cross-border personal pension vehicle as a means of empowering consumers to save more effectively for their retirement needs."

At that time, there was nothing similar in European law. Just over a year later, the commission started working on it.

The commission estimated that the EU's internal pension funds market could triple in value by 2030: from €700bn today, to €2.1 trillion.

These numbers transformed the PEPP into one of the commission's most ambitious projects.

Now the commission's proposal is on the table, pending approval from the European Parliament and the Council of the EU, representing member states.

But one member of the parliament's committee on economic and monetary affairs, Martin Schirdewan of the European United Left (GUE), is highly critical of PEPP.

"At the heart of this proposal are not concerns about pensioners' incomes, but only the possibility of opening up new opportunities for business for the financial industry", he said.

Result of lobbying?

There is no shortage of evidence that this was the top priority of BlackRock's lobby agenda in Brussels.

BlackRock president Robert Kapito talked about capitalising on European retirees' money in 2015. His company arranged more meetings with commission members than any of its competitors.

Since a mandatory register of meetings was put in place in 2014, BlackRock is recorded as meeting commission officials more than 30 times.

Larry Fink, BlackRock's CEO, again raised their European private pension fund idea in January 2017.

Speaking at a ceremony at the Frankfurt Stock Exchange, Fink seized the occasion to criticise an "over-reliance on state pensions" and used the demographic argument to justify the need for a private pension scheme.

He was not shy to say that people are living longer lives means that they can "work many more years to pay for their reforms", as he claimed that "strengthening the capital market and pension systems will be vital to Europe's economic future."

Months later, the commission's vice-president for the euro and social dialogue, Latvia's Valdis Dombrovskis, evoked the same anxieties when introducing PEPP at a European Pensions Conference, echoing Fink's Frankfurt comments.

"Europe is facing an unprecedented demographic challenge. Over the next 50 years the proportion of the working-age population is expected to double ... The so-called pension gap will increase the pressure on public finances," he said.

Additionally, Fink's conclusion in Frankfurt was that "retirement systems around the world have failed to prepare workers for the future". Dombrovskis' June speech argued the same point: state funding of pension schemes is something to review in the future.

"The pan-European Personal Pension Product is an important milestone towards completing the Capital Markets Union", Dombrovskis said in his June 2017 speech.

"Today we are proposing to lay the foundations for a single European private pensions market. We are presenting a new voluntary scheme to save for retirement, a Pan-European Personal Pensions Product, or PEPP," he announced.

Dombrovskis argument is in line with the EU's general policies. The European Semester and EU's country-specific recommendations tend to invite member states to make "structural reforms" in their pension schemes.

Its 2017 recommendations also targeted countries like Germany, Poland and Italy.

BlackRock discussed the PEPP further with the responsible directorate-general, for financial stability, financial services and capital markets union (FISMA) at least once, in October 2017. They also met with general director Olivier Guersent and Jan Ceyssens from the European Commission.

The commission told Investigate Europe that "FISMA had similar meetings with dozens of other PEPP stakeholders, which is normal, as we have tried to hear a wide range of stakeholders when drafting legislation. We also opened a public consultation to prepare the proposal, as usual, in which BlackRock was one of many entities to respond."

This idea - advocated by Blackrock since 2015 - had made it to the stage of a public consultation at EU level in the space of less than four years.

The suspicion that BlackRock's lobby has a special weight in Brussels was put to Guillaume Prache, director of Better Finance, the European Federation of Investors and Users of Financial Services.

"It appears that in 2017 BlackRock met several times with European commissioners while we did not have a single meeting with the commissioner responsible for financial services," Prache explained.

Resaver

This criticism from BlackRock's European rival comes after the American giant was also chosen to manage the wealth of Europe's first cross-border private fund, an NGO called Resaver.

Resaver is different from PEPP because it targets only professionals like university researchers and scientists. It is based on contributions from employers (universities, laboratories, companies).

The PEPP will be a kind of retirement savings plan (PRP), based on individual savings that, for the first time, will have pan-European rules, tax benefits and common treatment.

Assigning BlackRock to manage Resaver's funds disappointed European fund managers. Resaver is the work of Portuguese Research and Innovation commissioner Carlos Moedas and is funded at €4m by taxpayers via Horizon2020, the biggest EU research and innovation programme.

"It is somewhat surprising that the first public experience with a pan-European pension scheme has been granted to a US company when there are large financial asset managers in Europe," says Prache. "It is a sign of the success and efficiency of its lobby".

A European Commission product, Resaver includes pensions from the Budapest Central University, the Elettra Synchrotron of Trieste, the Italian Institute of Technology, the Fondazione Edmund Mach, the Vienna Technical University and the Association of Universities of the Netherlands, among others.

When Blackrock signed the contract with Resaver in Budapest, its director Tony Stenning tagged the new European pension scheme as a "one-time evolution", adding that "it will not be the last step" for Europe's pension market growth.

BlackRock's British hirings

This last sentence was, in some ways, premonitory.

Stenning was speaking in October 2015, many months before the plan for the creation of PEPP was known. But at that time BlackRock had other means of knowing in detail the evolution of related European decisions.

In 2015, months before gaining managerial powers over Resaver, BlackRock had hired the British civil servant, Rupert Harrison, as its new "head of macro-strategy", after convincing him to leave his job as chief of staff serving under the UK's chancellor of the exchequer, George Osborne.

Harrison had been the chief architect of the 'pension revolution', a grand project designed by David Cameron's Conservative-led coalition government.

This "revolution" - a termed also used by Osborne – open the doors to a market to which BlackRock, or, for that matter, other pension market managers, had not had access before.

After he stopped being chancellor in 2016, Osborne accepted a payment of £34,109.14 from BlackRock Inc, for a speech he gave in November 2016, covering a declared hour of work, plus travel and accommodation.

Osborne then joined BlackRock later, in 2017 after PEPP was launched. By then, he had participated in decisions affecting BlackRock's industry as the UK's finance minister.

Osborne took this part-time corporate job - that pays an annual salary of £650,000 for four days a month - after new prime minister Theresa May preferred that someone else ran the Treasury. Osborne now also edits the London Evening Standard, in addition to several other roles.

Investigate Europe asked BlackRock why they had hired both Harrison and Osborne. They referred to a statement issued to the Financial Times at the time of the hiring of Osborne, in which Fink said Osborne offered a "unique and valuable perspective on the issues affecting the world."

It added: "Understanding local market, policy, regulatory, technology, business and investment dynamics is integral to serving our clients and navigating our business. That is why BlackRock works with various senior advisers and strategists who bring a range of experiences in business, finance, academia and the public sector. We look for people who can offer our clients and investors a unique and valuable perspective on the issues that are shaping our world."

It offered no specific comment on Harrison.

In Britain, the US company has won public tenders to manage pensions connected to investment for county councils, the National Health Service, and public property funds. And this while the company holds a portfolio of real estate itself in the UK.

The US giant investor's business strategy has the power to influence competition rules and their impact in Europe. With its trillions of dollars, BlackRock buys significant parts of the largest companies in the world.

About two-thirds of BlackRock's financial muscle comes from pensions. After managing the majority of American pension funds, BlackRock has become a decisive shareholder in almost all key sectors in Europe: industry, banking, services, agri-food.

If this stakeholder couples with the influence of €2.1trillion held as European private pensions, who can tell what weight this company will have at the negotiation tables where Europe's economy is decided?

"BlackRock is a reflection of the retreat of the social state," says Daniela Gabor, a professor of economics at West of England University.

Investigate Europe asked BlackRock for an interview and submitted a long list of specific questions, including whether - since privatisation of pensions schemes in Europe was a divisive issue - they had taken this into account in their approach.

BlackRock declined the offer of an interview or to answer this specific question.

Investigate Europe is a pan-European pilot project: a team of nine journalists from eight European countries who research topics of European relevance and publish with media partners Europe-wide. The project is supported by Germany's Hans-Boeckler-Stiftung, Rudolf-Augstein-Stiftung and Stiftung Huebner&Kennedy, the Norwegian foundation Fritt Ord and the Open Society Initiative for Europe. The team cooperates with the NGOs Journalismfund and N-Ost

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