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EU countries lament 'fundamental' lack of detail in IORP consultation

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  • EU countries lament 'fundamental' lack of detail in IORP consultation

EUROPE - European governments have criticised the "fundamental" lack of detail provided by a recent consultation on changes to the IORP directive, calling on the European Insurance and Occupational Pensions Authority (EIOPA) to provide more clarity on a number of issues.

In submissions to the review, published today by EIOPA, the German ministry of finance insisted it would resist any proposals deemed to "weaken" the country's pension system and urged the European Commission to conduct "unbiased" impact studies on any proposed changes.

The UK's Treasury criticised that the arguments in favour of reform - to introduce an even playing field between the insurance industry and pension funds, as well as to allow for a greater number of cross-border schemes - required proposals of "such magnitude" and carried "such a high risk" that they were "highly disproportionate to the problems they purport to address".

The Dutch ministry for social affairs, meanwhile, questioned the directive's approach to a 'holistic balance sheet' (HBS), saying several areas still required clarification.

It said it was currently unclear how the directive would distinguish between unconditional, conditional and discretionary payments.

"This is an interesting distinction, but it is not clear to us how the allocation of the benefits will be made," the ministry said, arguing that the impact of HBS would be largely dependant on how such factors were interpreted and that the differentiation would have "tremendous consequences".

Directly questioning how the new regulations would impact the country's system of rights cuts - employed in case a scheme is unable to meet certain funding requirements - it called on EIOPA to "better illustrate" how such changes would be accounted for within the new balance sheet approach.

"And EIOPA should clarify," it added, "why a pension fund without external shareholders and in which all risks are shared by its participants nevertheless requires operational capital."

Germany's ministry of finance called on the Commission to consider the impact of existing mechanisms to secure pension payments.

It noted the unlimited guarantee by a German sponsoring company to fulfil all outstanding payments should a Penisonskasse or Pensionsfond prove unable to do so.

The federal ministry added that the existence of the Pensions-Sicherungs-Verein - the country's pension insurance scheme - provided "specific protection" for members and in 2009 alone had been able to deal with claims totalling €4bn.

The sentiment was echoed by the UK Treasury, which, in a joint submission with the country's Department for Work and Pensions, argued that there was a "fundamental lack of detail" on how sponsor covenants and the Pension Protection Fund would be assessed under HBS, warning that it could lead to increased capital demands on sponsors.

"These methods are fundamental to whether the holistic balance sheet is even possible as an approach," it told EIOPA.

"Without knowing whether it is possible to value these two mechanisms in practice, it is extremely premature to invite views on the holistic balance sheet as a formal proposal."

Similar concerns have been raised by numerous organisations in the past, with LCP last year questioning how the employer covenant would be valued, while both the UK's National Association of Pension Funds and employer lobby group CBI predicted that further capital requirements would lead to companies needing to contribute additional capital to schemes.

Germany's federal ministry added that it would resist the introduction of any new regulations it deemed "detrimental" to the country's occupational pension system, or any changes that made such provision "unfeasible".

It said that, if Solvency II were to be introduced, such a change would need to be preceded by "unbiased" impact studies.

"We reject any prior, unilateral decision made on the basis of the Solvency II model and which is founded solely on academic experts' faith in the system," it said.

However, counter to the responses from Germany, the UK and the Netherlands, the French Treasury endorsed the notion of "same risk, same rules" in its submission.

The Direction Générale du Trésor said it was "essential" to have a uniform level of security across the common market.

"For reasons of consistency, the Solvency II parameters should apply to IORPs," it said.

"If not," it added, "the question of the retirement activity of the insurance undertakings should certainly be re-examined."

France received support from the Hungarian financial services authority PSZAF.

While opposing the extension of the IORP directive to cover member states' first pillar - the only remaining system, following the country's decision to all but nationalise second-pillar assets last year - it voiced its support for Solvency II and required capital requirements in regulating defined benefit schemes.

"Pensions are specialised insurance products - in many countries, insurance undertakings provide pension service," it said. "Therefore, it is desirable to have similar regulations for insurance undertakings and IORPs exceeding a certain size."

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