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Endorsing holistic balance sheet like 'signing blank cheque' [updated]

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  • Endorsing holistic balance sheet like 'signing blank cheque' [updated]

EUROPE - The pensions industry is being asked to sign a "blank cheque" by agreeing to the holistic balance sheet (HBS) before details of its exact shape become known, the chief executive of the National Association of Pension Funds has said.

Speaking in UK parliament at a Work and Pensions select committee hearing on European Union pensions policy, Joanne Segars said asking for agreement on the HBS through the quantitative impact study (QIS) - part of the revised IORP directive - was impossible, as it was currently unclear how much it would cost schemes.

Neil Carberry, head of employment at UK employer lobby group CBI, echoed Segars' concerns.

"The holistic balance sheet amounts to a couple of slides with the [Pension Protection Fund], the covenant and the assets on one side and a heck of a lot of money on the liabilities column on the other," he said.

Carberry, previously head of pensions policy at the group, added that there was "no clarity" of structural design in the proposals.

"If that is the offer at the moment that is meant to assure us, it has certainly not done so," he said.

Other speakers raised concerns about the political independence of the European Insurance and Occupational Pensions Authority (EIOPA).

Nicola Smith, head of the economic and social affairs department at UK union umbrella group TUC, said the organisation was concerned about the "wider political processes" surrounding the review of the IORP directive.

She praised the pensions stakeholder group for offering "helpful insight" into the workings of the European supervisor and stressed that the TUC had no particular criticism regarding EIOPA's conduct.

"It comes down to the concern that we are going down a particular policy route with no evidence as for the need for that policy to be implemented," she said of the plans to implement Solvency II for pensions.

Carberry added: "There are remaining questions about independence in the wider political positioning. It was a surprise that they were so clear in their call for evidence where […] a direction of travel [was intimated]."

Matti Leppälä, secretary general at the European Federation of Retirement Provision (EFRP), attempted to put the supervisor's role in context.

"There isn't such a thing as technical advice on these issues, it's always political advice," he said, adding that there was a need for a "good balance" between input from EIOPA, the Commission and member states on all such issues.

He noted that EIOPA was the direct result of regulatory changes in the wake of the financial crisis, with a "sense of urgency" coming from national supervisors.

"The role of the EIOPA is very different from its predecessor," he said. "It's much stronger, and it can decide on binding rules and has a much firmer grip on the national-level supervisors.

"I know the Commission is concerned that the expertise will be in EIOPA - it will grow to be more powerful."

Leppälä, however, was critical that the IORP directive - which aims to reform the whole of the European pensions landscape - only affects a small number of member states, although he said he opposed attempting to widen its scope.

He pointed out that speakers often only cited the UK, Germany, the Netherlands and Ireland as being affected by any changes.

He added that, because many countries are currently not covered, the European Commission will soon realise the changes "will, of course, not be sufficient".

Carberry, asked by the committee to explain the European Commission's drive to implement Solvency II, said it had been a "cherished goal" of the Directorate General for Internal Market.

Segars agreed with Carberry, saying: "It seems quite clear to us that the push is from Internal Market, and that is partially also being driven by a particular issue around competition among the, as we understand it, French insurance industry and the French occupational pension industry."

Carberry, however, dismissed the notion that there was widespread French support, saying that a recent trip to France had seen a number of local companies voice their opposition to Solvency II - with the speakers all referencing its impact on equity investments and company funding.

Segars was also asked if she thought the directive would affect infrastructure investment, an issue of concern for the UK government.

She said infrastructure was currently growing "organically and relatively incrementally", but that it would only be one aspect of investment and unable to compensate for the shift away from investment in the "real" economy.

A spokeswoman for EIOPA told IPE it was its duty, according to the legislation setting out the supervisor's role, to act "independently and objectively" in the interest of the EU.

"Neither the chairperson, nor the voting members of the EIOPA's board of supervisors should seek or take instructions from the EU institutions, Member States or other public and private bodies."

Regarding the HBS, she added: "We would like to emphasise the importance of the quantitative impact study as we consider it very important to test the possible impact on the financial requirements for pension funds that the HBS and the various policy options within this approach might have."

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