Since a 1964 report on road pricing in the UK, authored by one RJ Smeed, the idea of charging citizens for use of public highways has been repeatedly raised in Britain. The concept has also been consistently rejected or quietly shelved by politicians, mainly because it is highly politically unpopular. But the idea has somehow permeated the UK’s civil service and it will doubtless surface again, probably to be rejected.
There is logic to this. Public administrations are constrained by time and resources. They hate wasting ideas. There are few new ways to earn revenue and truly innovative ideas are far between. If you don’t succeed in convincing one government about the merits of a given policy proposal, why not shelve it for the time being but dust it off when a more receptive set of politicians come around?
The same could be said about EIOPA’s holistic balance sheet (HBS) concept, which the authority seems to be pursuing with admirable and tenacious zeal despite the lack of takers. The Commission has left the HBS concept out of the IORP II draft directive and the idea has been panned by most of the industry.
EIOPA’s officials seem to be taking a similar view to the UK civil service on road pricing: why let a serviceable policy go to waste? You never know. Keep the powder dry and it might just be useful again soon.
Aside from the sheer complexity of the proposals and the fundamental flaws outlined in this issue by APG’s Wilfried Mulder and Peter Vlaar, the idea has run out of currency.
The HBS concept resulted from a desire, despite EIOPA’s protestations, to shoehorn pension funds into a solvency-based risk framework close to Solvency II, partly for organisational simplicity, partly due to a mechanistic ‘same risk, same rules’ mentality, although it has consistently denied that it wants to apply Solvency II to pension funds.
Since 2009, it has been easy to argue that all financial institutions need to be made resilient against future financial and market failures. While this is an important point, pension funds are not systemically relevant to the financial system. Although it is hard to argue that the financial system has been comprehensively future proofed, organisational attention on the part of the Commission and national governments is shifting to future challenges – long-term investment for instance.
The proponents of the HBS never really won or lost the argument. When it was dropped from IORP II it sort of transformed itself into a frozen conflict of European pensions policy. But EIOPA, now an independent institution, is free to continue work on the concept as it sees fit. It’s now time EIOPA stopped spending resources on such a demonstrably unrealistic framework.