The European Commission is unlikely to see an immediate boost to long-term investment from pension funds, despite recent emphasis on the matter as part of the revised IORP Directive.
PensionsEurope said the inclusion of the IORP II Directive as part of a package to boost long-term investing – such as attempts to increase transparency in the infrastructure loan market – was an important signal that EU member states should not prevent investment in assets that were not traded on regulated markets.
It nevertheless warned the Commission against expecting a sudden growth in long-term investing, even if the proposals meant member states could no longer restrict IORPs from pursuing such strategies.
In a detailed reaction to the draft directive, PensionsEurope said: “Provisions concerning long-term investment are marginal in the Directive proposal. That is why we doubt the IORP II proposal will drastically incentivise IORPs to invest more in long-term assets.”
The group also questioned how effective the proposed Risk Evaluation for Pensions (REP) model would be, if enacted.
The role of the REP, which the draft directive said would be completed “regularly and without delay” in instances where a scheme’s risk profile undergoes a “significant” change, could be served by “proper” existing asset and liability management studies, the response said.
As drafted, the REP would require IORPs to examine the risk stemming from a number of investment areas, including an assessment of risks relating to climate change and carbon-heavy extraction.
PensionsEurope said details of the REP were vague, as most aspects of it would be decided as part of delegated acts to be drafted at a later date.
“Above all, the use of delegated acts in such important aspects should not go against the competence of the member states in the area of pensions,” the group warned.
The response also raised concerns about the detail proposed as part of the universal Pension Benefit Statement (PBS).
“The one-size-fits-all approach proposed by the Commission misses the necessary distinction between members of occupational pension schemes and consumers of ordinary financial products and leads to the application of individual consumer-type Key Information Documents (KID) to all members regardless of the type of pension promise,” it said.
The KID was initially proposed as part of reform to packaged retail investment products, but IORPs were in April granted an exemption following concerns raised by industry representatives.
“Moreover,” PensionsEurope added, “we question the feasibility of producing the PBS on two pages when it takes six pages of the Directive to set out what should go in it.”
Meanwhile, the group said new requirements to appoint a depository risked being “meaningless”, as the requirement would remain in place even if assets were wholly managed by a third party that would be required under the Alternative Investment Fund Managers Directive to appoint the depository for the external vehicle.
PensionsEurope also questioned the Commission’s current timetable to review the draft directive four years after it is adopted.
“Assuming the directive is adopted in late 2015, this would mean a report in 2019, which would have to be prepared in late 2018, early 2019 – only two years after the member states transposed the directive,” it said.