EUROPE - Concerns about the impact of Solvency II on pension funds are based on "hyperbole", according to European Union commissioner Michel Barnier, who today insisted he had yet to make any firm proposals to introduce solvency regulations for IORPs.
Speaking at the Commission's open hearing on the review of the Institutions for Occupational Retirement Provision (IORP) directive in Brussels, the commissioner responsible for internal markets and services argued that he had never "said or implied" that pension funds would be subject to the same rules as set out in Solvency II.
"If that had been our intention, we would have made the proposal back in 2007 when we were submitting the Solvency II Directive," he said.
"We did not do so because we are aware of the key role played by occupational pensions in the member states' pension schemes."
He also criticised the fact that the press had done "little to allay […] concerns" that the revised directive would have a substantial impact on company balance sheets.
His claims that he had yet to put forward any firm proposals are likely to be greeted with doubt by an industry that viewed the recent IORP directive consultation as restrictive, with Towers Watson previously criticising that the European Insurance and Occupational Pensions Authority's (EIOPA) Call for Advice (CfA) only operated within the "limited remit" as dictated by the Commission.
EIOPA itself alluded to this in its advice to the Commission, stating that it was asked to consult on to what extent the legal framework for IORPs should be similar to that of other institutions, with emphasis placed on the use of Solvency II.
"The broader question of whether these articles were the right place to begin a review of the IORP directive was not asked of EIOPA," it noted at the time.
Commissioner Barnier insisted that demographic changes obliged the EU to take action and that a "succession of crises" had highlighted the need to ensure greater safety for pension fund members.
He said any changes to the directive would contribute positively towards growth and employment in the single market, highlighting that multinationals operating across Europe could consolidate their pension arrangements into a single cross-border fund.
Barnier said the "complexity" of current regulations prevented such consolidation at present, but added: "We want to facilitate economies of scale, risk diversification and innovation in order to enable businesses to reduce their costs and to simplify governance of their pension funds."
In its submission on the reviewed IORP directive, UK supermarket Tesco - which operates pension schemes in six EU territories - said it had no intention of setting up a cross-border fund, citing differing social and labour laws in the respective countries.
Barnier said that greater uptake of cross-border funds would free up capital that could in turn be used to finance further projects by individual companies, ignoring claims by both the German and UK pension fund associations that a revised IORP directive would actually reduce the amount of investible capital due to new capital requirements.
The commissioner said a "modern approach" with regards to pension legislation was needed, with the revised IORP directive able to account for various risk-reduction mechanisms, such as conditional indexation.
The Dutch ministry for social affairs, however, in its submission on the review, criticised the fact that the 'holistic balance sheet' approach outlined in the CfA failed to distinguish between unconditional, conditional and discretionary payments.
Barnier conceded that transitional arrangements might be required for defined benefit pension funds, saying it would not be "feasible" to apply stricter regulation with immediate effect.
"The problem will be less severe in the future because the majority of businesses are setting up defined contribution (DC) schemes, where the employees bear the risk," he said.
"That said, these schemes must also be regulated, just like the hybrid schemes, where the distinction between defined benefits and defined contributions is increasingly blurred."
He said DC funds often went "hand in hand" with insurance products and that it was therefore "essential to maintain a level playing field" in both the national and Europe-wide arena.
"I want to state very clearly that I have no intention of penalising either pension funds or insurance companies," he said, reiterating earlier statements that the Commission would not "copy and paste" Solvency II onto IORPs.
"We are going to propose a regulatory framework specifically for pension funds, but this will not be done with a 'silo mentality'," he added.
"We must draw on the rules developed in other financial sectors, in particular some useful aspects of Solvency II."