EUROPE - Bringing Central and Eastern European (CEE) countries' pension systems under the IORP directive could lead to governments following Hungary's lead and shifting all second-pillar assets back into the country's social security system, the European Federation for Retirement Provision (EFRP) has warned.

Responding to the European Insurance and Occupational Pensions Authority's (EIOPA) Call for Advice (CfA) on the directive, the lobbying group also warned that the review - the first step toward a new IORP directive - was premature and should not view Solvency II as a starting point.

The EFRP conceded that the European pensions landscape had changed since 2003, noticeably with wide-ranging pension reforms in CEE countries.

But it argued that, in light of an 8% increase in cross-border schemes in past year - a 14% rise in the past six months - there was no case for reviewing the directive "argued by a need for harmonisation to improve cross-border IORPs".

It also argued that, due to the nature of pension reforms in CEE countries, Union-wide agreement was needed on how to classify these new systems compared with the core EU-15 countries  - which include the UK, Germany and the Netherlands.

Its submission said: "The EFRP also believes there is a risk that governments in the CEE might shift back their second-pillar pension assets to the PAYG system, if their mandatory systems would be brought under the IORP directive, without considering the fundamental systemic differences between the occupational systems and the mandatory second-pillar systems."

The organisation said implementation of the IORP directive on the countries would only serve to reduce the coverage of funded pension provision in Europe, with the fallout not counteracting the gains made in reducing investment restrictions in the country.

It said it hoped Hungary would not acquire the 'first mover' status and remain an "isolated and most regrettable initiative," referencing the country's recent move to shift the majority of private pension assets into the state treasury.

"Additionally," it said, "those member states in the CEE region deserve acknowledgment of this reform in the assessment of their government debt level, as well as under the excessive deficit procedure, since otherwise they will continue to argue those assets are part of their statutory and central social security system and hence part of government assets."

This echoes a letter sent to the European Commission last year, in which nine countries, including the Czech Republic, Romania, Poland and Hungary, urged the exclusion of debt resulting from the pension reforms from debt levels.