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European Insurance & Occupational Pensions Authority Conference: Framing the DC debate

Gathering in Frankfurt for the European Insurance and Occupational Pensions Authority’s (EIOPA) annual conference, delegates could be forgiven for assuming the address by chairman Gabriel Bernardino would reflect on his previous successes, and avoid any controversial new proposals. 

Instead, he set his sights on goals for his second five-year term, championing again a stronger, more independent and better-resourced EIOPA. He criticised the 2015 cut to its operational budget that led to a staff freeze on the eve of Solvency II’s introduction and the stress testing of the pension sector. 

Bernardino challenged the pensions sector to take full advantage of the European single market, recommending the development of the pan-European framework for occupational defined contribution (DC). The idea mirrors EIOPA’s proposal for a pan-European personal pension (PEPP) system, and came soon after the Dutch government questioned the need for such a model.

While acknowledging the “high sensitivity” attached to any discussion of pensions, Bernardino said the framework should be simple and transparent, taking advantage of the potential of the EU internal market to reduce costs by employing economies of scale through a cross-border vehicle. 

Bernardino later expressed disappointment that, in discussing pension provision, there were often “negative views” of the possibilities offered through the internal market.

“I totally understand the difficulties,” he added, “and we have been discussing this, of course, for a long time, in terms of having a more harmonised solvency of occupational pensions in the defined benefit area. But, if you are talking about defined contribution, as I said, I don’t see why you cannot benefit more from the internal market.”

The benefits of the internal market were also extolled by Olivier Guersent, the director general of the European Commission’s Financial Stability, Financial Services and Capital Markets Union (DG FISMA).

In a keynote speech, Guersent defended the Commission’s decision to push ahead with the PEPP, one of the many proposals contained within DG FISMA’s recent action plan on the Capital Markets Union. “Despite the known barriers, we must work to create a genuine single market for insurance and pensions, with more cross-border sales and better portability of products,” he argued, promising that his department would follow the idea of a PEPP with the development of a pan-European insurance product.

He also challenged those who doubted the viability of such ‘29th regime’ models, which, in addition to the Dutch government, also include the German and Dutch pension associations, while being championed by industry groups including the European Fund and Asset Management Association. 

“I do not share the scepticism of some stakeholders about 29th regimes,” he said, citing the UCITS fund model as an example of a successful European model. “We need to plant a seed, and we need to allow it to grow.”

But there was plenty of scepticism for the 29th regime, both during a panel and from the floor. Tim Jones, former chief executive of the UK’s National Employment Savings Trust, said he could see the benefits of a scale operation under Bernardino’s framework, but he questioned its feasibility. “Realistically, the next few years is about creating scale in parts of the value chain but leaving the governance level at the member state,” he said.

Jones said the governance framework needed to remain at member-state level due to the importance of understanding how members interacted with the domestic tax and benefit system, responsibility for which remains with EU member states.

François Barker, partner at the London branch of law firm Eversheds, agreed with Jones and said the framework faced “some very difficult barriers”, including tax barriers, which, according to one heckling delegate, held back the “pipe dream” of continental provision.

Barker also noted the challenges facing existing cross-border provision, outside the scope of Bernardino’s DC framework. “I’m certain, within the [revised IORP Directive], there is at least one barrier attempting to be dismantled – which is the ‘full funding at all times’ test, at least one of the reasons there are so few DB cross-border schemes.”

Olaf Sleijpen, head of policy supervision at De Nederlandsche Bank, called for a better understanding of what motivated a move to cross-border provision. 

Amid concerns that Dutch schemes were attempting a move to Belgium’s less strict regulatory environment, Sleijpen suggested EIOPA’s annual report on cross-border funds should state why a fund would become a cross-border vehicle.

Such information would serve Bernardino well as he embarks on his term and draws up a framework for Europe-wide DC. Armed with facts and the factors behind existing cross-border provision, the framework could become more than the academic exercise it appears destined to become.

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