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IPE special report May 2018

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Aon Hewitt warns of IORP Directive's impact on smaller pension funds

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  • Aon Hewitt warns of IORP Directive's impact on smaller pension funds

EUROPE – Aon Hewitt has urged the UK pension industry to "keep up the fight" to ensure small and medium schemes are covered by the "right" IORP II legislation at a time when Brussels shifts its focus onto pillars two and three of the revised directive.

Senior partner Kevin Wesbroom also warned of possible legislative proposals the European Commission may make on governance and reporting requirements – which fall under pillars two and three of the directive, respectively – later this autumn.

Even though the UK pensions industry is "relieved" that "the most damaging aspects" of Solvency II for pension funds have been avoided, serious issues remain, he said.

Wesbroom argued that the most pressing issue was the need for "proportionality" in the future IORP II regime.

"It's tempting in the light of the 'triumph' of keeping the worst aspects of Solvency II out of legislation to think the battle is won," he said.

"But this isn't the time for the industry to sit back. If anything, it's a case of 'once more into the breach, dear friends'."

Wesbroom went on to say that the idea UK schemes would be asked to pay a levy for the European Commission to continue working on pillars two and three of the IORP Directive suggested Brussels was "still not in its best listening mode".

He conceded that the Commission's proposals on those two pillars offered "some very good and powerful parts", as they enable pension funds to look at the risks they face and the opportunities available to mitigate them.

"However," he added, "from the standpoint of UK schemes, the big issue is whether the EC can draft legislation that is genuinely proportionate and would be as suitable for the £50m (€59m) scheme as for the one worth £5bn."  

Wesbroom, therefore, called on the industry to keep up the fight to ensure pension funds in the small to medium end of the market were subject to the right legislation.

"Governance of the vast swathe of small to mid-sized schemes that are a feature of the UK pensions landscape will be a significant regulatory challenge in the years ahead for both UK and European regulators," he said.

Aon Hewitt's warning follows the announcement last month by Michel Barnier, commissioner for the internal market and services, that the Commission would postpone the introduction of capital requirements for occupational pensions.

It also comes after Barnier said he would present a legislative proposal focusing on governance and reporting requirements for occupational pension funds in the autumn.

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