The insurance industry has raised concerns about the uneven regulatory environment being created by the revised IORP Directive, after trialogue negotiations agreed to allow under-funding of cross-border schemes.

Insurance Europe welcomed the “good level” of transparency being introduced by IORP II, but its head of macroeconomics, Nicolas Jeanmart, was critical of the new arrangement allowing cross-border occupational pension funds to be underfunded when the same was not allowed for insurers providing pension payments.

“The trialogue agreement is concerning because it does not ensure a consistent regulatory response to cases of under-funding of IORPs’ cross-border activities, entailing a risk of regulatory arbitrage.

“It is therefore of vital importance that member states make the right decisions when implementing the directive to protect EU citizens’ occupational pensions.”

The insurance industry has often called for a level playing field between insurance products and occupational pension providers, pushing for the introduction of capital requirements and for cross-border funds to be fully funded at all times.

Its demands were reflected in a European Commission white paper on pensions in 2012, and elements of it were reflected in the European executive’s first draft of IORP II.

However, during trialogue negotiations among the European Parliament, member states and the Commission, which concluded last month, a compromise was agreed allowing cross-border IORPs to “immediately draw up appropriate measures” to protect members in the event of underfunding, rather than force them to address deficits straight-away. 

Consultancy Aon Hewitt struck a more positive note, saying the law “largely succeeds in finding the right balance”.

It welcomed that many barriers facing cross-border funds had now been removed.

Partner Colin Haines said: “The new directive should make it easier for international organisations to set up pan-European pension plans for their European workforces and to use their European scale to provide employees with better pension provision.” 

He said it was “right” for the directive to focus on risk management and governance and argued that the new requirements would be nothing new for larger pension funds.

Haines acknowledged, however, that some of the new transparency measures could bring about changes in the way pension funds pay employees, as the schemes would now need to disclose remuneration for key staff members.

“This could lead to changes in the way pay and bonuses are determined,” he said.