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​EIOPA considers action over ‘unsuitable’ DC investment options

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The IORP Directive could be further revised to establish a clear link between the needs of defined contribution (DC) members and a fund’s investment strategy, according to the European Insurance and Occupational Pensions Authority (EIOPA).

Publishing a detailed report on DC investment behaviour across EU member states, the supervisor noted the diversity of approaches, with some savers required to select an investment option, while others were offered a default fund they could opt not to use.

It said the funds should have an Investment Policy Statement (IPS), outlining how long-term investments would be and the fund’s liquidity needs, with the document also laying out return objectives and a member’s willingness to take on risk.

Accepting that such practices were already in place in some markets, notably the Netherlands and UK, EIOPA said there would still be “room to improve the link between the Statement of Investment Policy Principles (SIPP) […] and the characteristics of the target group”.

It added that it would conduct a review of the IORP Directive’s clause on the SIPP, which currently only mandates a review of the policy every three years and that asset allocation be in line with the “nature and duration” of liabilities.

The SIPP must also be made available to members upon request, and EIOPA questioned whether this would be required of the IPS.

The review would seek to offer “concrete” recommendations on strengthening governance, the report said, with EIOPA open to drafting guidance on how to mitigate investment risk for DC members.

Additionally, it said it could offer advice on “unsuitable” investment strategies or investment options, extending to options deemed inappropriate for default funds.

EIOPA said the clear regulatory focus on a pension fund’s fiduciary duty had already seen funds in the Netherlands base its investment approach around a member profile.

The supervisor’s report was published on the same day as a consultation paper on good practice for transfers between occupational pensions.

The call for advice, closing 10 April, was asking for feedback on voluntary transfer agreements and criteria that could be used to halt any transfer, including when a transfer would impact the future sustainability of a scheme.

Read more on the debate surrounding the nature of pensions provision in Europe in the current issue of IPE

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