The pension industry’s lobbying campaign over the revised IORP Directive seems to be bearing fruit. Not only has Brussels agreed to postpone the publication of a draft version of the Directive until next summer, the Commission is also set to launch a Green Paper on long-term investing.
This paper - first mentioned by internal market commissioner Michel Barnier during his opening remarks at the Insurance Europe’s annual conference last month in Amsterdam - aims to ensure that new legislation such as Solvency II and the revised occupational pensions directive does not hamper institutional investors’ long-term investment strategies. “We will shortly be launching a Green Paper on this key issue of long-term investment,” Barnier said. “In this regard, I would like to examine the impact of our proposals, especially Capital Requirements Directive IV (CRD IV) and the Solvency II Directive.”
The announcement surprised the industry. Needless to say, when it comes to news regarding the revised IORP Directive, some surprises are more welcome than others. But this announcement was a most pleasant one, as a spokesperson from the Dutch Federation of Pension Funds pointed out. “The IORP Directive in its current form represents a major source of concern for Dutch pension institutions,” he said. “Any amendment to the current directive will therefore be welcomed.”
Despite these early encouraging signals, the proposal for a Green Paper remains extremely vague. No further details have been provided, while the Commission has yet to decide the exact date for its launch. What is more, the Green Paper would still represent only the first stage of a possible reform on long-term investment. And since a White Paper would be the next step in that process, it means it might be several years before Brussels can actually legislate on long-term investing.
Even then, the industry can only speculate on what direction the Commission might take with the Green Paper. Some have suggested that the IORP Directive could be implemented in the knowledge that it would be revised yet again to accommodate recommendations in the Green Paper and, ultimately, in the White Paper on long-term investing.
But many pension experts - including James Walsh, senior policy adviser at the UK National Association of Pension Funds - worry that this solution would increase complexity. “There is a serious potential danger here if the Commission were to go ahead with an IORP Directive that damages pension schemes and tried to mitigate that damage through further legislation on long-term investments,” Walsh says.
According to Dave Roberts and Mark Dowsey, both senior consultants at Towers Watson, however, Brussels is unlikely to opt for this line of action. Roberts says: “It would be strange to see the Commission implementing the revised IORP Directive first and then waiting for the results coming out of the White Paper before amending the legislation for occupational pension schemes. The Green Paper proposal might, instead, open the door to a potential twin-speed approach.”
The Commission may indeed agree to introduce the revised IORP Directive in several phases. Brussels could implement the second and third pillars of the IORP framework first, which cover governance and transparency issues, respectively. The implementation of the first pillar, which refers to additional capital requirements, would then follow,
taking into account the conclusions of the White Paper.
Still, all this is speculation; nothing has yet been confirmed by the Commission. And as the announcement of the Green Paper has illustrated, European regulators are never still - there might be new surprises around the corner.