White Paper plans could threaten survival of workplace pensions – AEIP

EUROPE - Some proposals within the White Paper on pensions - including the Solvency II quantitative framework - could threaten the very existence of workplace pensions, the European Association of Paritarian Institutions (AEIP) has claimed.

In its analysis of the White Paper, the AEIP welcomed the European Commission's recognition of the role of social partners in the formulation of member states' pension policies, but it rejected a "purely internal market" approach to workplace pensions - a view that is shared by the European Federation for Retirement Provision (EFRP), with which AEIP shares some members.

Francesco Briganti, director at the AEIP, told IPE: "Looking at several factors that form the structure of workplace pensions, there are some important differences arising among European countries.

"In the Netherlands there is a long-term commitment as IORPs are mandatory and thus the solvency requirements should be treated in a different way than in countries where IORPs are not compulsory like in Italy.

"In Italy, in case of financial stress, members could easily withdraw from the pension schemes.

"Having said that, it is important to point out that, in Italy, all IORPs are defined contribution (DC) plans."

The inclusion of a new passage on Solvency II in the long-awaited final version of the White Paper caught many in the industry by surprise.

In Article 11 of the White Paper, the Commission says it will present a legislative proposal to review the IORP directive this year.

"The aim of the review," it adds, "is to maintain a level playing field with Solvency II and promote more cross-border activity in this field and to help improve overall pension provision in the EU."

Also commenting on the holistic balance sheet approach - introduced by the European Insurance and Occupational Pensions Authority (EIOPA) as a substitute to the Solvency II capital requirements within the revised IORP directive - Briganti said the measures could be a "disaster" in some countries such as Belgium.

He also rejected the term 'holistic balance sheet', advocating the 'holistic' approach only.

"Under Belgian law, the organiser (employer or industry) has to guarantee a minimum return accrued reserves of 3.25%. Last year, financial markets couldn't provide that minimal return, but as pension funds are long term investors, they have a solid shock-resistance", he said.

"From an accounting point of view, the holistic balance sheet, does not make any difference between the solvency of the pension-institution or the pension plan. This lack of clarity threatens the organisers with huge extra premiums and will not increase the accrued rights for the members."

"In addition, when pension funds cover industry-wide branches, the financial burden has to be shared by several companies from the same sector."

According to Briganti, this additional cost will push many companies to invest in insurance products for their employees rather than organising a pension fund.

"This could alternatively lead to the closure of all defined benefit pension schemes, seen as too costly," he said.

The AEIP also criticised two other proposals -12 and 15 - within the White Paper on pensions.

In proposal number 12, the Commission says: "The Commission will, in 2012, take initiatives to ensure a more effective protection of workers' occupational pension rights in the event of insolvency of their employer on the basis of Article 8 of Directive 2008/94/EC.

"It will take into account a horizontal assessment of its implementation across the EU and ECJ jurisprudence."

Under Article 8 of Directive 2008/94/EC, member states are obliged to have in place necessary measures to protect employees' immediate or deferred old age benefits if the employer becomes insolvent.

The AEIP said the review of Directive 2008/941 would be unnecessary, as "sufficient" clarifications had already been provided by the jurisprudence of the European Court of Justice.

On proposal 15, which covers the portability of supplementary pension rights, the AEIP argued that such a sensitive issue should not be the province of European lawmakers but rather of the social partners and the pension funds themselves.