Bernardino: Solvency II not a simple exercise

With the introduction of Solvency II less than a year and a half away, the pensions industry is still unclear what kind of regime it will face and how aspects of the Directive, drafted for insurance companies, may be applied to diverse European pensions.

In the past, the European Insurance and Occupational Pensions Authority (EIOPA) has indicated that the unique nature of pension funds would be taken into account. But, in an interview with IPE, chairman Gabriel Bernardino gave the strongest indication yet that applying Solvency II will not be as simple an exercise as transferring insurance regulations onto the continent’s retirement vehicles.

“This is not a copy/paste exercise,” he told IPE, arguing that any kind of risk management imposed on the schemes through the directive would end up benefitting its members. He repeatedly stressed that it was not EIOPA’s objective to apply Solvency II to pensions.

He added: “Of course, there are many elements of Solvency II that we should consider.” He highlighted the need for a common standard in areas affecting pension schemes such as governance and risk management, as well as reporting transparency and member data maintenance. However, he ruled out EU regulatory intervention in investment rules when asked if current investment restrictions, imposed by national regulators, would be lifted by EIOPA.

Bernardino also looked to address the complexities of the European set-up, with the EC currently considering its options on harmonising with the forthcoming White Paper on Pensions. He argued that there was “one truth”, regardless of the political wrangling on pension reforms - namely, that over the coming decades there would be an increased need for private pensions, as public social security arrangements struggle with the costs of an ageing population.

He admitted that certain problems were simply a result of each country having taken a different approach to pension vehicles. “Pension funds in some countries - in the UK, for example - don’t transfer the risk. The pension fund is a vehicle - the risk stays, basically, with the sponsor,” he noted.

“In Europe, you’ve got realities where risk is completely transferred from the sponsors to entities,” he said, adding that this was akin to life insurance systems. “You’ve got realities where this is not the case, where it is more an externalisation of the management of a portfolio and where the liabilities remain with the sponsors. You need to take that into account.”

Asked if he thought that cross-border pension vehicles, such as the Dutch Premium Pension Institution (PPI), would stimulate growth in the cross-border sector, he was less sure. December 2010 figures from EIOPA’s predecessor, the Committee of European Insurance and Occupational Pensions Supervisors, show a net gain of only two IORPs in 2010, with fewer than 80 in existence across Europe at the time.

The chairman also did not think it was the job of regulators to provide an incentive for opening new schemes - it should simply facilitate these launches. “What we should try to do is remove the barriers that are there,” he said, arguing that the decisions were up to the market, as well as sponsoring employers. “Of course, there are barriers that are difficult to touch upon. Tax, for example - it’s an area where we still have national decisions,” he said, indicating that the area could be viewed as an obstacle to the further proliferation of IORPs.

He was hopeful his five-year term would see results in all the areas he cited, saying that great progress had been made simply on the level of communication. “If you go to meetings of our Occupational Pensions Committee, you feel people understand each other,” he said, referring to the gradual evolution of a European-wide vocabulary on pensions, despite the differences between each system. Returning to the issue of Solvency II, he said it was natural, therefore, that these differences would be taken into account, but that the “basic principles” could still be applied to all schemes.

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