Responding to the European Commission’s White Paper on Pensions from February late last month, the European Federation for Retirement Provision (EFRP) has called for the proposed review of the IORP Directive to grant pension funds greater security in the instance of sponsor insolvency.
The EFRP says the review offered “an opportunity to improve protection of workers’ pension rights” in case of insolvency.
“A broadening of the scope of the 2008 directive could lead to wider coverage of protection, and new rules on the priority of creditors in favour of IORPs and pension plan members could also be envisaged.”
Recent court rulings in the UK against the collapsed European division of Lehman Brothers and Nortel Networks found that outstanding payments to its respective pension funds, as demanded by the Pensions Regulator, needed to be met prior to those to unsecured creditors. The call for greater security is unsurprising in the wake of the financial crisis and a number of larger insolvencies that have increased the pressure on existing European protection funds.
In the same vein, the organisation also suggests a restriction on ownership of company shares in pure DC schemes, as this could also “enhance protection of pension plan members in the event of the insolvency of their employer”. Similar investment restrictions are already in place in a number of countries.
The position paper further suggests that the revised IORP directive should look to enhance the coverage of pension funds and, once again, rejects the notion of a Solvency II-based regime for funds.
Addressing the more contentious aspects of a revised IORP directive - the increased capital requirements based on Solvency II - the EFRP once again points to the differences between IORPs and insurance companies, saying the former does not offer products and is additionally backed by sponsors.
“The Directive should aim to enhance the coverage and efficiency of workplace pensions, rather than to pursue theoretical ‘level playing fields’ between providers that do not compete in reality,” it says.
“The EFRP invites the European Commission to align the IORP revision and the White Paper on pensions, with a view to pursuing the security of pensions and the joint objectives of adequacy and sustainability.”
The organisation further highlights the need for any changes to take into consideration the “uniqueness and diversity” of IORPs across Europe, saying such an approach was the only way to achieve the desired security of benefits.
Looking to the future and beyond the current IORP review, the EFRP also calls for talks on pension portability to begin anew, suggesting that a Directive would allow for “high-level” facilitation - allowing once again for the single market’s diverse pension systems to be recognised.
However, it is realistic in its assessment of mobility, saying the Directive should only be applicable to new entrants post-implementation, rather than applied retroactively. “In this way, existing obstacles to mobility could be overcome over time.”
The EFRP further notes the impact of the diverse tax systems, saying a “uniform” tax system for contributions would “facilitate cross-border pension activities”.
However, to date, member states have been reluctant to surrender tax powers to the Commission, with a universal approach to tax policy as complicated as harmonising the pension systems of 27 states.