EUROPE - Pension industry figures have welcomed European commissioner Michel Barnier's recent speech in which he told Dutch pension fund managers that any revision to the IORP Directive will take in "substance, rather than form". 

The commissioner for the internal market said: "We shall not 'copy in' all the Solvency II rules. I wish to come up with a revised version of the directive by the end of this year."

Francesco Briganti, director of the European Association of Paritarian Institutions (AEIP), told "Considering that the Commission is already working on a new solvency framework for pension funds, the AEIP reacted by setting up a new working group that will be addressing the situation."

The AEIP's group meetings start in February and will continue once every two months. Its objective, according to Briganti, will be to formulate a proposal that will introduce a solvency framework that will ensure the safety of pension schemes.

The AEIP plans to send its proposals to the Commission within six months.

Briganti said the AEIP was currently working alone on its working group project, but that it would try to coordinate its common position with the European Federation for Retirement Provision (EFRP) in due course.

The EFRP itself said that more research and a full-scale impact assessment would be needed before the Commission could arrive at a formal proposal.

In its view, the proposal has to deal with the challenges of today's workplace pensions, rather than focus on capital requirements of pension institutions currently under the IORP Directive.

Chris Verhaegen, secretary general, pointed out the difference between workplace-based pension schemes funded by IORPs and those based on group life insurance.

To call for creating a "level playing field", she added, is, in reality, "to imply a policy choice that never has been made at EU level".

The European insurance and reinsurance federation (CEA), whose members include life insurance businesses, also welcomed Barnier's speech, but for different reasons. 

The CEA's director general, Michaela Koller, said: "We welcome the messages sent by commissioner Barnier. He has made clear there will be a revision of the IORP Directive and that the Commission will update the outdated solvency rules that currently govern pension funds.

"The Commission will work on the basis of an impact assessment, which we also welcome. The commissioner has made very clear the Commission will seek to develop solvency rules that are risk-based and transparent, which is what we have been calling for. These are the same principles that underlie the new Solvency II regime for insurers."

Barnier's speech has marked an important step toward removing barriers between the Dutch pensions sector and the European Commission, according to Jacqueline Lommen, European pension consultant at Aon Hewitt.

Lommen said she would welcome more detailed but not necessarily harmonised Solvency II rules for pension funds and acknowledged that current funding rules did not encompass all the "building blocks" of the funding framework.

She said Aon Hewitt supported the Commission's position of having solvency rules for pension funds based on similar "principles" - such as market valuation and risk-based buffers - as in Solvency II, but that it did not support the actual measures.

She said the actual parameters, such as discount rates and stress-testing, should take into account the fundamentally different risk structure of insurers on the one hand and of often employer-backed pension funds on the other.

"This is the way to go," she said.

Insurance-dominated pension markets, such as Germany, France and parts of the Nordic region, logically press for the application of Solvency II rules to create the proverbial 'level playing field'.
At the other end of the spectrum, however, countries like the UK and Ireland have pensions provided by 'trusts' that are owned, run and guaranteed by employers. In these markets, introducing Solvency II buffers on top of the sponsor guarantees would be too expensive. 

The Netherlands comes somewhere between Germany and the UK, with 'trust-based' pension funds having to maintain solvency buffers. However, these buffers are normally lower than the buffers insurers have to maintain, according to Lommen.