As RI has reported, Philippe Desfossés, will leave his position as CEO of ERAFP, the €27bn French public service additional pension scheme (ERAFP) in December. The decision is not his. And no doubt an asset manager will snap up such a highly respected finance chief and one of the most vocal and cogent sustainable finance supporters in the world. Their gain will be a loss to a good public pension plan.
But why would ERAFP move on such an internationally respected CEO from, arguably, one of its best known, most successful capitalised retirement funds?
The answer is that Desfossés is ostensibly being swept aside by a tidal wave of change in French pensions.
The position of ERAFP CEO is appointed by joint order of the ministers responsible for the public service, the budget and social security. This is because ERAFP manages the capital for an additional retirement benefit that French civil servants accumulate as part of bonuses and ancillary remuneration.
Under the proposed French pension changes – which are at the drawing board stage – the country’s mandatory occupational pension plans, known as ‘regimes’ (there are more than 40 different ones), which save into pay-as-you-go retirement funds (caisses de retraite) that sit alongside France’s mandatory state pension portion, will be pooled into one system. The high level change will be a replacement of the current calculation for retirement based on the number of quarter years worked to a system based on an as-yet-unknown career points calculation. ERAFP, along with France’s other mandatory civil service pension plans, falls into the same system revision; hence the departure of Desfossés, announced by ERAFP President, Dominique Lamiot, this summer at a board meeting. A replacement has yet to be named.What happens to the assets? Good question. One likelihood is that the huge pool of money will be put out to market, potentially creating a boon for those fund managers or insurance companies that get the contracts; history would suggest being large and French is an advantage.
It would also suggest, that like ERAFP, the €36bn Fonds de réserve pour les retraites (FRR) (the country’s state pension reserve fund) and Ircantec, (the €10bn euro pay-as-you-go pension arrangement for non-tenured employees of the state, territorial authorities and public bodies), the investment pool will have a strong RI charter, thus creating a bigger incentive for ESG in French asset management.
More broadly, French fund managers are feeling pretty bullish at the moment.
The Loi Pacte [Pacte stands for ‘Action Plan for Business Growth and Transformation’] is a wide-ranging new law introduced by French finance minister Bruno Le Maire.
RI has already flagged it up for slightly different reasons (it has a strong responsible capitalism element to it), but it also introduces a number of key changes to France’s third pillar private pension savings market.
In a bid to shift French retirement savings away from bonds in popular life assurance plans (only 20% of which invest in equities), the government is bringing in capital release products, more pension portability, and has freed up the pension annuity market away from an exclusively insurance product. France’s National Assembly adopted the Loi Pacte this month for implementation in spring 2019.
Asset managers have had their eye on the lucrative French life assurance market for some time, and this looks like their chance to start eating into it.