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Revised IORP directive could increase cost burden for DC schemes – NEST

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  • Revised IORP directive could increase cost burden for DC schemes – NEST

EUROPE - NEST Corporation - the trustee body responsible for running the UK National Employment Savings Trust (NEST) - has warned that revisions to the directive on Institutions for Occupational Retirement Provision (IORP) could increase costs for defined contribution (DC) pension schemes.

Lawrence Churchill, chair at NEST, said: "EIOPA's consultation could lead to a number of requirements that mean increased costs for defined contribution schemes such as NEST, including the potential requirement to hold additional capital against operational risk."

It also argued that, due to the special nature of NEST - being both a public body and an IORP scheme - the 'holistic balance sheet' approach put forward for the new directive would be inappropriate.

NEST Corporation said it would like to contribute to future discussions on how the approach might be applied, as it was currently "far from obvious" that the benefits would outweigh the costs.

It also insisted that insurers' requirements for the supervisory review process should not be applied to the revised IORP directive.

"We do not consider that this would be an appropriate measure for DC schemes, as it fails to recognise the differences between IORPS and insurance companies," it said.

"Supervision by a competent regulatory authority should focus on local risks and local needs."

It added: "More generally, any new European regulatory proposals should take account of the diversity of pension provision in Europe and avoid prescriptive regulations that would inhibit this diversity."

It called on European Insurance and Occupational Pensions Authority to carry out a full impact assessment of the proposals.

Following the publication of a report by JP Morgan Asset Management last week - which claimed that the new Solvency II requirements could force UK defined benefit (DB) schemes to increase funding by £600bn (€719bn) - Raj Mody, head of PwC's pensions group, argued that EU proposals to adapt such capital requirements to pension schemes could destroy not only defined benefit schemes but any occupational pension provision.

"The additional costs for companies would ultimately be borne by individual savers, who would see less generous pensions, whether defined benefit or defined contribution," he said.

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