Individual should choose on biometric risk
EUROPEAN DIRECTIVE SPECIAL – Biometric risk cover in occupational pensions should not be mandatory but must at least be offered by the retirement provider, Othmar Karas – European Parliament rapporteur for the occupational pensions directive has declared.
In his report today (March 21) on institutions for occupational retirement provision (IORPs) to the Parliament’s Economic and Monetary Affairs Committee (EMAC),
Karas puts forward his view that as the middle ground between the first pillar where biometric risk is normally covered and the third pillar where it is generally dependent on the individual pensions contract, the occupational pensions pillar should allow a degree of choice.
The move is sure to inflame some European MEPs on the left of the Parliament, including European Socialist Party rapporteur Wilfried Kuckelkorn, who has already declared he will attempt to block any directive where biometric risk is not an obligatory component.
However, Karas argues: “Provision for surviving dependents makes little sense in the case of single persons, and a disability pension would appear to be dispensable in cases where other forms of financial provision have been made.”
Consequently, Karas proposes that a mandatory biometric risk option would offer an obvious solution, noting: “ The requirement that institutions for retirement provision should offer such an option should apply both to provision for disability and for surviving dependents.”
The optional availability of biometric risk has manifold advantages, according to the rapporteur.
Firstly, he asserts, it would lead scheme members to think carefully about their future financial provision and any possible shortcomings they may have.
Secondly, he notes that making biometric cover mandatory would turn occupational pension provision products into insurance vehicles and thus hamper competition.
Thirdly, Karas says the separation of costs will guarantee a higher degree of transparency, noting that institutions would be unable to justify lower benefits by referring to the provision of biometric risk.
And finally, he points out that firms unable to provide biometric risk cover would be able to call in an external financial service provider, which would calculate its premium partly on the basis of the investment policy of the IORP.
He argues that this would ensure a high degree of security for members, as breaches of the prudent person rule would be reflected in higher costs for biometric risk cover.
Karas says he hopes there will be a vote on the report by EMAC at the end of April in order to be able to go to plenary in June or July at the latest.