Sections

Letter from Brussels: Cross-border challenge for IORP II

IORP II may have cleared the European Parliament’s committee stage but amendments tabled to the second directive covering occupational pensions since 2003 are so radical that it would be unwise to forecast its future.

Approval of amendments to the legislation by the Economic and Monetary Affairs Committee (ECON) has been slated for 1 December. The revised rules will then be discussed in December or early 2016 in ‘trilogue’ by the European Parliament, member states, and the Commission. Consideration by Parliament has been scheduled for 18 January. Assuming agreement, the IORP II Directive could be in force by 2018.

Nevertheless, there is potential for contention on the issue of fully funded cross-border IORPs. One amendment to the Directive issued by ECON states that “it is not appropriate…to adopt a ‘one-size-fits-all’ approach”. The reasoning here refers to significant variations on how EU member states organise their occupational pensions. The amendment seeks to avoid “prejudice to national social and labour law”.

On the cross-border issue, another amendment states: “It should be recognised that such activity has been limited because of the restrictions laid down in social and labour law.” The wording is followed by text referring to “other barriers to the proper functioning of the internal market”. A further amendment seeks to establish a group of experts “to promote best practice for cross border activity”.

Summarising the problem, the European Association of Paritarian Institutions of Social Protection (AEIP), recently concluded that the conditions laid down in the proposal will be “unlikely [to] foster the development of cross border activities”.

Legislators also have to face up to the lack of clarity in solvency requirements for pension funds. In April 2011, the European Insurance and Occupational Pensions Authority (EIOPA) undertook its Holistic Balance Sheet (HBS) study. While neither the HBS nor specific, quantitative solvency requirements will be included in IORP II, the legislation must be squared with the need to uphold “the right to a high level of consumer protection” – the wording agreed in November 2014 by member state governments in the Council.

At a recent public conference the centrist MEP Sophia in ’t Veld, set the tone: “We have to guard against taking irresponsible risks.” Measured support for in ’t Veld came from Brian Hayes MEP, which is relevant because he is the ECON rapporteur for the IORP II Directive. Hayes repeated his standard position: “We are talking about other people’s money…. many people take up jobs bearing in mind that the [future] benefits are genuine.”

“Some limited progress continues on cross-border pensions. One initiative is the Commission’s RESAVER project, launched in October to provide pan-European pensions for academic researchers who move between member states”

In contrast, EIOPA appears to be relaxing its stance to the HBS, emphasising that it is now taking a “more principles-based approach to valuation”. It is also indicating its willingness to balance its “approach to the valuation of sponsor support”.  At one meeting, Manuela Zweimueller, head of regulation at EIOPA, used the terms “flexible” in relation to the new HBS approach.

Separately, outside the scope of HBS, the authority concludes that it will be able to deliver its opinion on solvency standards for IORPs in April 2016, as expected.

Back in the Parliament, an amendment on information disclosure adheres to the original proposal’s wording, namely that “the current minimum level of information prevision to members and beneficiaries needs to be increased”. Another amendment advocates the supply of “clear and relevant information”.

Input from the EU’s Economic and Social Committee (EESC) emphasises the promotion of IORPs in countries “where they are either non-existent or only just beginning to emerge”. Currently, the UK and the Netherlands account for the vast bulk of IORP assets.

Some limited progress continues on cross-border pensions. One initiative is the Commission’s RESAVER project, launched in October, to provide pan-European pensions for academic researchers who move between member states. This plan is expected to be up and running in mid-2016.

Another is the Pan-European Personal Pension (PEPP) private pension plan, which derived from the idea for a ‘twenty-ninth regime’ to complement the existing member state frameworks for occupational pensions.

The PEPP initiative came to prominence in February 2015 in the Commission’s policy paper, Building a Capital Markets Union. In June 2015, Gabriel Bernardino, head of EIOPA, who described the pensions status quo as “fragmented”, announced a consultation on PEPP. The authority is expected to report in early 2016.

The European Fund and Asset Management Association (EFAMA ) says the proposal could create a simple, highly standardised, cost-effective and trustworthy product that could be offered across Europe. PensionsEurope also lends its support. It sees the benefit “especially to provide pensions for those who don’t have access to adequate workplace pensions”. 

In ’t Veld does not see RESAVER or PEPP as major initiatives. “I don’t think the two new instruments, which are not for replacing but are for complementing existing schemes, are part of any deliberate strategy from the EU institutions,” she says.

Pages in: Letter from Brussels: Cross-border challenge for IORP II

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • DS-2343

    Closing date: 2017-09-29.

Begin Your Search Here