EUROPE - Changes to the EU's Institutions for Occupational Retirement Provision (IORP) directive might dissuade pension fund sponsors from launching cross-border vehicles, as new Solvency II measures pose a serious threat to European schemes, according to Bart de Wit.
Following French pension provider UMR's decision to launch an Organisation for the Financing of Pensions (OFP) fund, operating under Belgian law by mid-2012, Bart de Wit, adviser at the Belgian Association of Pension Institutions, said several barriers remained for the implementation of cross-border funds in Europe, and that the change of prudential law within the second IORP directive would be unlikely to encourage the spread of such vehicles.
"Pension fund sponsors are currently concerned about social labour laws and how to comply with such regulations of both the home state and the host state," he said.
"In addition, fiscal laws in some European member states are still hampering the development of cross-border vehicles, and some countries have been taken to court by the European Commission over tax issues related to foreign pension funds in the past."
De Wit said the implementation of a new directive with solvency and funding provisions similar to the Solvency II framework for insurance companies would therefore be "inappropriate".
"Applying the actual proposals on IORP II might encourage scheme's sponsors to look more into unit-linked insurance products for which insurers will not provide any guarantee and the scheme member might end up with all the risks", he said.
According to de Wit, the fact sponsors seek to regroup their pension funds within a single pan-European vehicle has more to do with risk management than cost-cutting.
"After the financial turmoil in 2008, we have seen many sponsors expressing interest in such structures," he added.
"But many sponsors might now choose to adopt a 'wait and see' approach in light of the current uncertainty around the new IORP directive."
UMR's recent move signalled the creation of the first significant EU cross-border vehicle under the first IORP directive, implemented in 2003.
Some 84 pension funds have registered cross-border activity under the terms of the legislation, but most of these are understood to cover pre-existing cross-border membership between the UK and Ireland, which have long co-operated in occupational pensions.