The scope of the EU’s main pension fund law should not be changed, workplace pension groups have told the European Commission in response to a wide-ranging consultation on supplementary pensions.
The consultation is set to inform the Commission’s proposals for reforms of the IORP II Directive and the Pan-European Personal Pension Product (PEPP) Regulation, slated for the fourth quarter of this year.
On the Commission’s question about the Directive’s scope, the Association of European Paritarian Institutions (AEIP) warned that broadening IORP II rules to capture all “pension-like institutions” could result in regulatory overreach and impact on the functioning of social protection systems.
It also said the IORP II Directive should be adjusted to exempt small and medium-size IORPs from horizontal legislation, such as the Sustainable Finance Disclosures Regulation or Digital Operational Resilience Act, as these rules imposed heavy compliance burdens for those pension funds.
Simone Miotto, executive director at AEIP, said a key issue that should be considered in the next review of the IORP Directive is the enhancement of the proportionality principle across the entire framework.
“The application of this Directive should always take into account the size, nature, scale, and complexity of IORPs’ activities,” he said.
“Without this consideration, excessive governance, transparency, or reporting requirements risk eroding the viability of these institutions, discouraging the establishment of new IORPs, and ultimately failing to support improvements in pension adequacy in the EU.”
“The interests and unique characteristics of our industry were frequently disregarded by EU policymakers”
PensionsEurope
An overarching request from the AEIP is for the Commission to prioritise strengthening occupational pensions and to promote the paritarian governance model, whereby pension institutions are jointly managed by social partners and operate on a not-for-profit basis.
PensionsEurope also opposed expanding the scope of the IORP II Directive and said that “proper emphasis should be given to proportionality and subsidiarity”.
“The interests and unique characteristics of our industry were frequently disregarded by EU policymakers, who instead concentrated on banks, insurance firms, and asset managers,” wrote PensionsEurope.
Changes to the IORP II Directive should aim to reduce costs and reporting requirements, the pension fund industry umbrella argued.
Investment rules and diversification
Elsewhere in their consultation responses, AEIP and PensionsEurope advocated for IORPs to retain flexibility in their asset allocation strategy and said that regulatory, structural, and prudential factors were the main reasons for a low diffusion of unlisted assets among IORPs, as the Commission put it in its consultation.
PensionsEurope said the regulatory framework should promote the use of alternative investment funds “as an effective and prudent way for pension schemes to access unlisted asset classes”.
Both organisations also pushed back against the notion that the scale of IORPs inherently limited their investment capacity or portfolio diversification.
They also expressed opposition to the introduction of an EU-level explicit duty of care provision, saying that the protection of members and beneficiaries was already ensured by existing governance structures and legal frameworks.
The mutual oversight and balanced representation of the paritarian model “offer a built-in fiduciary duty and social responsibility that already go beyond what a formal ‘duty of care’ clause could impose”, both organisations wrote.
PEPP
Meanwhile, with regard to the future of the PEPP, occupational pension bodies are arguing against it being adapted for the workplace.
In the Netherlands, the Pensions Federation said it was good that the European Commission was looking into the reasons for the PEPP having “hardly got off the ground”, but that it does not see a role for the PEPP within the second pillar.
“This would create the risk of friction between the PEPP Regulation and national rules for the second pillar in the Pensions Act,” Pensioenfederatie wrote.
“It is also not clear what this would contribute, as there are already plenty of options for individual DC products in the Netherlands.”
PensionsEurope also argued against introducing a PEPP workplace product, with reasons including that this would risk interfering with the operation of established or emerging pension schemes and that a workplace PEPP product also wouldn’t help to gain scale.
Reiterating a point it had made in response to a Commission call for evidence on its Savings and Investments Union strategy, PensionsEurope said that if PEPP use in the workplace were to become permissible, then member states should have the option to prevent the PEPP from functioning as a second pillar product.
Cyprus-based LifeGoals Financial Services, one of only two PEPP providers, is urging EU policymakers to transform the product into a workplace retirement savings vehicle, rather than creating a separate Pan-European Occupational Pension Product.
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