Governance lessens need for capital requirements, pensions experts say
EUROPE - The presence of robust governance measures would mitigate the need for capital requirements for pension funds, according to attendees of the European Commission's hearing on the revised IORP directive.
During a debate at the public hearing in Brussels yesterday, the panellists insisted on the need to improve governance and transparency.
One of the attendees, Mark Dowsey, senior consultant at Towers Watson, asked the panellists whether good governance coupled with greater disclosure could be a suitable security mechanism to replace capital requirements within the revised IORP directive.
Chris Verhaegen, chair of the European Insurance and Occupational Pensions Authority's occupational pension stakeholder group, said: "What is certainly true is that when we have a well-organised pension scheme, there is less risk of derailing in different processes.
"Consequently, good governance cannot replace capital requirements, but it can contribute a lot so that your technical requirements can be dissolved."
Juan Yermo, head of the private equity pension unit at the OECD, echoed Verhaegen's sentiments, arguing that governance could not be a substitute for funding regulation or other financing protections.
"However, governance does strengthen the security of pensions and is a security mechanism in that sense," he said. "Governance release is an ultimate key aspect to ensure the delivery of benefits."
Dowsey went on to ask another question related to the role played by the European Commission on the establishment of the requirements on good governance and transparency.
"To what degree is it necessary or desirable to have these requirements established centrally by the European Commission?" he asked.
According to Bruno Gabellieri, secretary general at the European Association of Paritarian Institutions, it is important to take into account differences between one country and another.
"If you look at large pension funds in some countries with large investment potential and very [experienced] teams, it is probably sure that regulators can see their situation in terms of solvency in a more adequate position," he said.
"It is, however, important to note that small pension plans cannot be supervised in the same way as large pension schemes."
With regards to the three pillars of Solvency II, Klaus Stiefermann, managing director at the German pension fund association AbA, called on the Commission to take the second and third pillars as a starting point to evaluate the problems in the occupational pension sector, rather than targeting the first pillar, which focuses on capital requirements.
"We should start our discussions on how to implement proper transparency and a good governance," he said. "From there, it would then be natural to tackle the topic of capital requirements."
Karel van Hulle, head of the European Commission's insurance and pensions unit, asked Stiefermann what he would recommend doing on the first pillar, considering the fact that, "if we were to make progress on pillars two and three, there would be a less painful exercise on pillar one".
Stiefermann replied: "We heard earlier during this public hearing that we need to conduct full impact assessments before implementing any solvency-type regime within the IORP directive. But I do not know what the Commission exactly wants.
"What we simply need is something totally different from Solvency II and implement a regulation that fits the occupational pension system's needs."