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EFRP rejects notion of 'harmonising' European DB pensions systems

EUROPE - The European Federation for Retirement Provision (EFRP) has poured cold water on the notion of harmonising Europe’s defined benefit occupational pensions systems and questioned the EU’s very involvement in ongoing revisions to the IORP directive.

Matti Leppälä, the new secretary general at the EFRP, said: “It is not feasible to try to harmonise [occupational pension systems], and this cannot be done as part of single-market legislation.

“[These systems] are very much part of social and labour law, and harmonisation should take place on a national level through social partners, or at EU level if they so wish.”

He said such matters instead ought to be left to individual EU member states. 

“The EU lacks competence in harmonising these areas, and it is necessary to [reiterate] that these are political decisions and not single-market technical issues,” he said.

“There should be risk-based regulation, but not risk-based solvency requirements.”

He said the EFRP’s submission to EIOPA’s call for advice on revisions to the directive on Institutions for Occupational Retirement Provision (IORP) highlighted the economic cost of “overly stringent”, risk-based solvency rules.

It also warned of the long-term effect on the real economy if pension funds were unable to act as “long-term bearers of investment risk” in areas such as private equity.

Meanwhile, Towers Watson described the decision to conduct a quantitative impact study (QIS) on EIOPA’s ‘holistic balance sheet’ (HBS) approach in the revised directive - just six weeks after the consultation period would have closed - as “inadequate and unnecessary”.

Earlier this week, Gabriel Bernardino, president at the European Insurance and Occupational Pensions Authority (EIOPA), confirmed that the first QIS to test the HBS approach would be launched on 13 February.

Dave Roberts, senior consultant at Towers Watson in the UK, conceded that impact studies were important.

“EIOPA said in October that it was essential to carry out a quantitative impact assessment before the [European] Commission produces any legislative proposals,” he told IPE. 

“It is good that it is sticking to that view, as the last thing pension schemes need is funding rules designed without proper analysis of their potential impact.”

But he argued that EIOPA should have taken more time before launching a QIS.

“Much less encouraging is the fact that EIOPA feels able to focus its efforts on the HBS approach so soon after its consultation closed,” he said.

“EIOPA seems to have already decided the HBS is going to form part of the solution - otherwise, why would they go ahead with the impact assessment?”

Roberts said the timeframe EIOPA had adopted was “inadequate”, and that there was “no need to rush this through”.

He also said the fact EIOPA was already talking about an impact assessment raised the question of how much attention it had been able to give to the responses received.

“We suspect many of the 170 responses that EIOPA received will have expressed strong reservations about this model, but work on this approach is continuing full speed ahead,” Roberts said.

“Organisations had just two months to respond to EIOPA’s proposals, and EIOPA gave itself even less time to digest their responses before saying next month what advice it intends to give the Commission.” 

Roberts also argued that announcing the timescale for investigating a specific proposal would add to the sense that work was being fast-tracked so that the Commission could make its next move.

However, some in the industry believe a QIS should be conducted sooner rather than later.

Leonardo Sforza, head of research for Europe and EU affairs at Aon Hewitt in Brussels, said: “The real question is not to know whether the QIS should be conducted now or later during the year.

“What the industry really needs to focus on is whether EIOPA allows itself a sufficient timescale to conduct the full impact assessment and whether it does it rigorously.”

Sforza also stressed that, once the QIS had been completed, EIOPA would need to enter into a dialogue with all stakeholders about the outcomes of the consultation process and the issues raised by the industry.

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