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HBS best way to grow cross-border schemes, says EIOPA

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Cross-border funding rules for European pension funds could be relaxed by using the harmonised holistic balance sheet (HBS) model, the EU-wide regulator has suggested.

Gabriel Bernardino, chairman at the European Insurance and Occupational Pensions Authority (EIOPA), said the consulted-on HBS would allow pension funds to operate across borders while running a deficit.

Current rules stipulate that cross-border schemes must always have enough assets to match liabilities.

Plans to encourage the growth of cross-border pension funds among multi-national companies have suffered, as they pose too much capital risk for corporate sponsors.

However, the HBS as envisaged by EIOPA would impose solvency requirements or minimum funding levels, or act as a risk-management tool.

In an interview with IPE, Bernardino said a harmonised system across the EU would allow cross-border funds to be in deficit, as long as they complied with the HBS framework.

“If you want to remove the cross-border fully funded requirement, there needs to a be a higher level of harmonisation,” he said. 

“When you do these [HBS] consultations, you push people to think about the real economic elements of pension funds.

“And if EIOPA does this, then we will have influenced the way the sustainability of pension schemes is addressed.”

In October, the authority published a consultation providing six frameworks for the HBS, each either imposing solvency requirements or a minimum funding level, or presented as a risk-management tool.

Bernardino said the risk-management tool would come with some funding consequences.

The idea of solvency requirements for pension funds was initially expected to be included in the IORP II Directive, before being dropped by then commissioner Michel Barnier, after protests from several governments.

However, the idea lived on, with EIOPA working on the HBS outside European Commission influence.

“There is an intrinsic value in the work EIOPA is doing,” Bernardino said.

“Cross-border pension funds highlight the true nature of the European internal market.

“[But a cross-border] pension fund still has to report to countries in different fashions – it is completely sub-optimal.

“If we move towards a sufficient, minimum level of harmonisation on technical provisions or solvency, we can have a better consistency and convergence, and there will be huge cost benefits.”

The consultation runs until 13 January 2015.

Bernardino also said its consultation on the HBS had not been done with an outcome in mind, and that the authority’s main aim was to be challenged by the industry.

“We are open, and this is why we are consulting,” he said.

“You need to have an idea, but the one I have is not a choice between framework one or framework six – it is to listen.”

To read the full interview with Gabriel Bernardino, click here or see December’s issue of IPE magazine

Readers' comments (1)

  • Is it not incredible that EIOPA refuses to accept that the quantitive approach of applying Solvency II to pensions is not acceptable to many member states, the European parliament and the Commission and continues to try to apply it under the guise of the "holistic balance sheet"? My interpretation of this latest concession is that it is old and tested ploy - first tell people the bad news that they have to hold full funding at all times and then tell them there is a discount if they comply.
    I think it is time to revisit the very existence of EIOPA as it is clearly in pursuit of its own agenda.

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