European parliamentarians have been urged not to back any draft of the revised IORP Directive requiring full funding of pension fund liabilities, ahead of a crucial vote to decide the chamber’s final negotiating position.
The Confederation of British Industry (CBI), the UK employer association, said it wished to see the debate around full funding “ended once and for all”, arguing it was a major concern to business as it could entail “considerable” costs.
Neil Carberry, director of employment, skills and public services at the industry association, said requiring full funding would undermine sponsors’ ability to stand by their pension funds.
The call comes ahead of a vote by the European Parliament’s Economic and Monetary Affairs Committee (ECON), which is set to approve the final draft of rapporteur Brian Hayes’s report on the revised Directive.
“Any regulation,” Carberry said, “which hurts employers’ financial capacity to stand by their pension promises only increases the likelihood of a scheme to enter into pension scheme welfare systems and risks a reduction in the income savers receive in retirement.”
He said requiring full funding of future accrual was “wrong-headed”.
“A pension is a benefit, created and guaranteed by the employer in recognition of service,” he said. “It is not an insurance policy purchased on the open market that therefore needs to be regulated like a financial product.”
He said it was important to ensure pensions continued to be viewed “as the social security benefit that they are”.
“Because of this, the CBI and [sister industry group] BusinessEurope are calling for full funding requirements to remain off the table,” he said.
Additionally, Carberry said it was important to respect the EU’s principle of subsidiarity and allow individual regulators to decide the regulatory environment for schemes.
Hayes’s draft report proposed the introduction of full funding on the sector as a whole when “a new or an additional scheme” was launched, rather than on an ongoing basis, as with cross-border IORPs.
He has since rewritten his amendments to avoid accidentally including schemes changing accrual rates.
Concerns have remained over the potential for new requirements to be imposed at a later date, but Hayes has sought to reduce the risk by removing the European Insurance and Occupational Pensions Authority’s ability to draft any further technical standards.
ECON is set to vote on Hayes’s report on 25 January, following which a compromise draft of the Directive is set to be decided in negotiations among the Commission, Parliament and member states.