Investment rules for workplace pension funds should not be harmonised at European level. At least, this is the view aired in several responses to the European Insurance and Occupational Pensions Authority’s (EIOPA) call for advice (CfA) document on the revisions to the 2003 IORP Directive.

The European Federation for Retirement Provision (EFRP) states that it “firmly disagrees” with implications in EIOPA’s suggested options for IORP revision that the principle of a risk-based approach be extended across borders.

In its CfA, EIOPA suggested a range of options on how to handle Article 18, as it stands in the existing, 2003, IORP Directive. This spells out, thoroughly, in over 1,000 words, rules for investors. One option would leave it “substantively unchanged”.

That ‘don’t touch Article 18’ approach is reflected in the response from the UK’s National Association of Pension Funds. It does not object in principle to EIOPA’s proposed amendments, which are already covered by the prudent person principle, “but it is not clear that they would deliver any practical increase in protection”.

Similarly, the Belgian BVPI-ABIP Association considers that the prudent person principle should remain the basic principle in a revised IORP Directive. It then adds that investment rules should be consistent with the retirement objective of an IORP, based on the nature and duration of the liabilities, and on appropriate risk management.

However, Charles Cronin, a member of the EIOPA Occupational Pensions Stakeholders Group (OPSG), would like to see Article 18 expanded, to encourage investment with a long-term perspective, to meet the best interests of members. He is concerned that a precedent has developed defining “prudent behaviour” to mean “conforming to the crowd”. He writes that it is no moral defence to say you acted prudently by “following the crowd…. even if your portfolio has just fallen off a financial cliff”.

On roughly the same lines, the OPSG notes the existence of a preamble to regulation in the South Africa Pension Funds Act. This allows investors to take into account “factors of an environmental, social and governance character”.

The European Association of Paritarian Institutions points out that IORPs are important suppliers of risk-bearing capital. Investment or prudential rules should not interfere with this role, the association states. It puts forward the idea that a “more macro-economic analysis on the role of IORPs for the EU economy is desirable”.

Doubtless, with the contentious Solvency II issue in mind, the Federation of Dutch
Pension Funds responds: “Contradictory as it may seem, it may well be possible that
investing in ‘less risky’ or seemingly ‘safer’ investment classes is not in the best longer-term interests of the beneficiaries if they do not generate the yields necessary to meet the commitments.”

While respondents restate opposition to inclusion of Solvency II rules in workplace schemes, they cannot ignore that EIOPA also takes the insurance sector under its wing. Likewise, so does the European Commission, the ultimate arbiter, at least for legislative proposals.

The next step for revision will be a report on the CfA by EIOPA on the many submissions. It is assessing over 150 of them, which are said to comprise in total a vast 3,500 pages. The authority’s conclusions can be expected some time after mid-February.

Shortly after that, perhaps in February or March, the European Commission will hold a conference. It may, late in the year, publish its own proposals - but any delay would not be the first.

The issue will then move to the European Parliament, where one key player, Vicky Ford, UK Conservative MEP, warned in a recent speech that “directly transposing capital adequacy models from the insurance industry onto pension providers would result in increased costs and reduced pension returns”.