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Different ring-fencing rules could hinder cross-border pensions

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  • Different ring-fencing rules could hinder cross-border pensions

EUROPE - The safeguards expected from ring-fencing pension assets may not work as expected in certain situations or countries, raising potential risks for cross-border pension provision, CEIOPS has warned.

In a supplement to its initial review of key aspects of the implementation of the Institutions for Occupational Retirement Provision (IORP) directive, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) concluded that ring-fencing in IORPS was a "subjective area", as countries can take different approaches to ring-fencing.

It also pointed out that, in some scenarios, the action is an optional, rather than a mandatory, measure.

The report examined both administrative ring-fencing of the assets and liabilities of different schemes operated by the same IORP or trustee, and patrimony protection rules in separating different pension schemes to see how they cope in three stress scenarios:

The default of one of the pension funds operated by an IORP The default of the IORP itself The default of the service provider/IORP provider

CEIOPS concluded the outcomes of the stress scenarios depended very much on the type and structure of the IORP, while the range of legal forms and structures this can take made the analysis of possible implications "quite complex".

However, it suggested pension funds could be exposed to risks arising from stresses related to other pension funds or non-occupational retirement provision activities such as service providers.

And it warned these risks could have implications for cross-border pension provisioning.

In addition, it noted that in some countries ring-fencing is optional, while in others it is prohibited - and where it is allowed, the levels of protection afforded to ring-fenced assets vary widely from country to country.

It said: "As a result, the safeguards expected from ring-fencing may in practice not work as expected in certain scenarios or in certain countries, thus potentially raising issues for cross-border pension provisioning should a stress scenario develop."

Meanwhile, CEIOPS has published a market development update on the use of IORPs that showed seven new cross-border IORPs had been created between June 2009 and June 2010.

This is equivalent to a 9% increase in the total number reported in the 2009 report.

However, the findings from the 2010 survey noted five IORPs had ceased cross-border activity, meaning the overall change is a 3% increase from 76 IORPs to 78.

CEIOPS said five European states had reported new cross-border pension provision - Ireland, Austria, Belgium, Liechtenstein and the UK.

As these had previously registered IORPs, the number of 'home states' - where the employer with the IORP is based - remains steady at seven, while the number of 'host' states - where the scheme covered by the IORP is based - also stayed at 22.

As of 1 June, the CEIOPS survey showed the UK is the home state of the most IORPs (33), of which 13 are hosted in Ireland and four in the Netherlands, while Ireland had 27 IORPs, with 23 hosted by the UK.

 

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