EIOPA has decided against recommending the introduction of a “low-risk” pension fund concept in its final advice on the IORP II Directive, and has made adjustments to its draft advice regarding a requirement to take into account the sustainability impact of investment decisions.

Published today, the final advice is for the benefit of the European Commission, which will present its proposal for the future of the EU pension fund legislation after the European Parliament elections next year.

Topics covered by EIOPA in its advice include proportionality, conflicts of interest, cross-border activities and transfers, sustainability and diversity and inclusion. The final advice follows a consultation earlier this year.

Chair of EIOPA Petra Hielkema said that EIOPA’s advice addressed the fact that the pensions sector was “experiencing profound changes”.

“We need to embrace the future while protecting the legacy,” she said. “More and more IORPs are offering DC schemes and an increasing number of multi-sponsor IORPs are being set up by commercial service providers.

”At the same time, challenges such as an ageing population, widening pension gaps especially for women, and climate change are directly affecting occupational pensions. It is therefore important that the IORPII Directive recognises and reflects these changes.”

The supervisor highlighted that its advice:

  • made specific proposals on transparency of costs and charges and reflecting sustainability in investment decisions;
  • recognises the need for existing DB IORPs to be properly regulated and supervised, including the appropriate monitoring of solvency risks and the sound management of liquidity risks, particularly in light of events in the UK in 2022; and
  • proposes ways to enhance the proportionality measures of the existing regulation and to reflect it in new standards.

SFDR concerns addressed?

If the Commission follows EIOPA’s advice, EU pension funds will in future face a legal requirement to integrate sustainability considerations in their investment strategy and decisions from the so-called “double materiality” perspective. This means that they would consider the adverse impact of investments on environmental and social issues, as well as the potential implications of environmental and social issues for their investments.

Explaining its stance, EIOPA said it acknowledged that considering sustainability risks and sustainability factors were “different but related requirements” and that it advised an “integrated approach where the impact on sustainability factors is considered as a part of the assessment of sustainability risks”.

“Accordingly, IORPs would be obliged to consider the impact of their investment decisions on sustainability factors when and to the extent it poses a sustainability risk to them,” EIOPA said.

A key concern for the pension fund industry is how these requirements would interact with other legislation, in particular the Sustainable Finance Disclosures Regulation (SFDR).

In its final advice, EIOPA said it recommended an approach “that does not imply that IORPs have to disclose on this consideration in the statement that is required under Article 4(1)(a) of the SFDR, which states that ‘financial market participants shall publish and maintain on their websites, where they consider principal adverse impacts of investment decisions on sustainability factors, a statement on due diligence policies with respect to those impacts’”.

“EIOPA is of the view that Article 8 of the SFDR should only be triggered for IORPs that present the consideration of the adverse impact of their investments on sustainability factors as an objective of the pension scheme”

EIOPA in its final advice to the European Commission

Pensioenfederatie, the Dutch pension fund association, had for example expressed concern about pension funds losing the possibility of opting-out of Article 4 of the SFDR, which requires publication of a due diligence statement in relation to the consideration of “adverse sustainability impacts”.

According to EIOPA, its recommended approach – requiring IORPs to consider the adverse impacts of investment decisions on sustainability factors “within the sustainability risk context only” – would also avoid pension schemes automatically falling within Article 8 of the SFDR.

“EIOPA is of the view that Article 8 of the SFDR should thus only be triggered for IORPs that present the consideration of the adverse impact of their investments on sustainability factors as an objective of the pension scheme instead of only as part of a risk management measure in documents that the members and beneficiaries receive, such as the SIPP or the annual report where this is a disclosure that is not ‘promoted’ as a characteristic as such,” it said.

“IORPs that have sustainability goals embedded in the investment policy still need to manage the sustainability risks,” EIOPA added.


Another area in which EIOPA’s final advice departure from its draft is in relation to proportionality, dropping the idea of introducing the concept of low-risk profile IORPs that would be subject to certain simplified measures.

This proposal, which stemmed from Solvency II, was opposed by industry groups such as aba, the German occupational pensions association, which argued that it should be primarily the responsibility of the member states and the national supervisory authorities to ensure the proportionality is applied “appropriately and appropriately” to all IORPs.

EIOPA has, however, recommended an increase in the threshold for exempting small pension funds from certain requirements in the IORP II Directive, to 1,000 members and beneficiaries and €25m in assets. The recommendation in its final advice includes adopting a grandfathering clause for IORPs with less than 100 members that currently make use of the exemption.

A threshold of 1,000 would leave a sizeable part of IORPs outside the scope of the Directive, but it could help small IORPs, a point made by PensionsEurope in its feedback to EIOPA’s consultation. PensionsEurope had argued for size and internal organisation to be relevant criteria for proportionality, however, whereas EIOPA does not adopt such an approach in its advice.

EIOPA has also advised the European Commission to consider a higher threshold, i.e. an asset condition of €50m instead of €25m for the purpose of the small IORP thresholds in Digital Operations Resilience Act (DORA) and SFDR during their reviews.

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