The revised IORP Directive is one step closer to fruition, after MEPs agreed on a final draft of the law.
After delays, negotiations between the political parties and tweaks to the amendments tabled – sometimes to assure their passage through the Economic and Monetary Affairs Committee (ECON), sometimes to iron out mistakes introduced by other amendments – Irish MEP Brian Hayes’s report has been finalised.
Hayes, who first tabled a draft report in 2015, has agreed a negotiating stance that addresses some of the pensions industry’s biggest concerns with the recast directive. The report attempts to ensure the European Insurance and Occupational Pensions Authority (EIOPA) respects the unique aspects of member state pension systems; that it highlights the importance of co-operation when it comes to cross-border provision and how the current directive holds back its development; and that it attempts to ease the burden that could have been imposed through the universal Pension Benefit Statement.
In a change that might prove difficult for the Dutch industry, one amendment recommended that any rights cuts be clearly communicated to beneficiaries before they are decided on. Consultations about benefit reductions are already the norm in Ireland.
A small but significant victory was also won by environmental campaigners, who saw the assessment of climate risk reinserted after it was removed by member states. It also made explicit reference to the “risks related to the depreciation of assets due to regulatory change”, a legal way of requiring pension investors to consider the risk of stranded assets.
Importantly for countries such as the UK and Ireland, MEPs added wording requiring trustee boards to “collectively be fit and proper”, addressing concerns about IORP II imposing new trustee qualifications on the industry. This avoids a situation whereby the whole of Europe is held to the same trustee standards now facing pension funds in the Netherlands, where board requirements have led to a shortage of qualified applicants.
PensionsEurope was quick to praise the draft agreed by ECON as “a more practicable, more proportionate and less prescriptive” directive. Janwillem Bouma, the association’s chairman, declared himself happy with the outcome, saying it granted individual member states the ability to tailor requirements, while fully considering their own approach to pension provision.
The industry group was also pleased with the relaxation of cross-border funding requirements for IORPs, which would put cross-border funding on the same footing as that applied in its home nation. “This is a welcome reform,” said Matti Leppälä, chief executive of PensionsEurope, “which should make it easier to establish and operate cross-border pension schemes.”
Despite the industry’s initial satisfaction with the outcome – the Council of the EU and the Parliament, two of the three European institutions have adopted stances friendly to its views – some problems may still be contained within the text agreed by MEPs.
For one, there are concerns about an addition of “current” to a paragraph on market discount rates. The previous wording could have allowed for the flexibility of a non-current rate, which in turn would allow regulators to ignore the current low interest rate – similar to the smoothing applied by Dutch regulators, as well as that resulting from the extension of the German discount rate.
The emphasis on “current” would see the pensions sector exposed to market volatility without recourse, troubling for medium-sized German funds currently shielded from such turmoil.
Of course, all changes proposed by member states and MEPs could still be overturned, as the trialogue process has to agree a final version of the directive before it is again put to Parliament. Initially, there were hopes the process would be completed during the Dutch presidency. It remains to be seen if the institutions can find consensus when the Commission’s initial draft has seen some of its main reforms all but stripped away.