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IORP II risk-evaluation rules must be drafted before directive can pass – AEIP

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  • The European Commission

The European Commission must publish further details of the proposed IORP II risk assessment framework ahead of the Directive passing into law, according to the European Association of Paritarian Institutions (AEIP).

Publishing its position paper on the revised IORP Directive, the organisation was critical of the draft’s “overwhelming internal market point of view” and argued that the directorate general and parliamentary committee for employment and social affairs should be more closely involved in all future decisions.

However, the AEIP welcomed the Directive’s removal of member state investment restrictions and its abandoning capital requirements, which internal markets commissioner Michel Barnier confirmed last year would be dropped.

It nevertheless warned that the proposed Risk Evaluation for Pensions (REP), to be completed “regularly and without delay” when a change in a scheme’s risk profile occurs, could be seen as the “first step” towards an Own Risk and Solvency Assessment (ORSA) – one of the key elements of Solvency II.

It further warned that the article within IORP II detailing the REP made allowances for a delegated act should be abandoned in favour of the legislative draft containing all relevant information, due to the “sensitivity” of the topic.

Delegated acts are often inserted after a Directive has been passed by the European Parliament and would likely be informed by the European Insurance and Occupational Pensions Authority’s work, similar to the devolution of responsibilities on regulations for other financial directives to the European Securities and Markets Authority.

“Moreover, the future draft delegated acts should be subject to a cost-benefit analysis and should be limited to technical aspects,” the position paper added.

“All the information and improvements the Risk Evaluation for Pensions might bring to an IORP could be reached also through [asset-liability management] studies.”

The REP currently stipulates that funds examine risks stemming from a number of areas, including the risk to its portfolio from climate change and resource scarcity.

The AEIP was also strongly in favour of the IORP Directive being scrutinised not only from a financial perspective, calling for greater involvement for those responsible for social affairs within the European Commission and Parliament.

It further called for the directive to be discussed not only by the finance ministers of each member state as part of an Economic and Financial Affairs (ECOFIN) meeting, but for representatives of domestic social affairs ministries to debate it during their own meetings.

The organisation suggested the Pension Benefit Statement (PBS), widely criticised by a number of other groups, failed to add additional value, and said the proposed two-page format was unlikely to provide “clarity and understanding”.

“The AEIP would rather plead to [allow] for national creativity and national solutions to information provision adapted to the specific needs of the different IORPs,” it said.

“It would refrain from providing just more information, as this should rather be clearer and comprehensible.”

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