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Pensions expert calls for alternative to 'inflexible' IORP directive

EUROPE - The pension industry’s views on the promotion of IORP vehicles in Europe would seem to be diverging, with some experts concluding that their implementation has become impracticable and that alternatives should be pursued.

Since the consultation period on the revised directive for Institutions for Occupational Retirement Provision (IORP) closed on 2 January, many industry figures have raised concerns over the feasibility of harmonising Europe’s social labour laws and tax regulations - still the biggest barriers to the introduction of cross-border pension funds.

But while most would seem to hope that a properly revised directive will help to overcome those obstacles, some experts have reached the conclusion that IORP vehicles simply should not be developed anymore.

Jérôme Dedeyan, president at France-based consultancy Debory-Eres, has instead called for the use of UCITS for pension funds.

According to Dedeyan, building individual pension accounts that could be transferred from one country to another throughout an employee’s career would be a better alternative to IORP funds, as well as a “more flexible approach” for both contributors and sponsors.

“UCITS funds have proven their success over the years, and these vehicles could now serve as an example to bring new and simpler long-term savings vehicles to European consumers,” he said.

“Clearly, the contributors and sponsors will be subject to the local social labour laws, as well as the local taxes in which the UCITS fund is based.”

However, Bernard Delbecque, director of economics and research at the European Fund and Asset Management Association (EFAMA) - which called for the introduction of a personal retirement plan called the Officially Certified European Retirement Plan (OCERP) backed by UCITS investment funds in 2010 - insisted that the European Commission should continue in its efforts to improve regulation for cross-border vehicles.

He said: “The creation of pension plans such as the OCERP would need to be based on the IORP model in order for pension fund sponsors to promote their vehicle in several member states across Europe.”

Nonetheless, Delbecque conceded that the European Commission would need to bring several amendments to the current revised IORP directive, as “too much focus is currently put on the regulation of DC schemes and capital requirements”.

Meanwhile, the European Association of Paritarian Institutions of Social Protection (AEIP) echoed concerns over capital requirements within the revised IORP directive.

In its response to the Commission’s Call for Advice, the association said: “AEIP is convinced that the weak success of cross-border pensions is not a sufficient justification for such a deep review of the content of the IORP directive.

“The barriers for the setup of cross-border activity are not only of a prudential nature. They have to deal also with tax issues, resistance of local stakeholders, costs for managing a complex legal environment and possibly also a basic lack of demand, since cross-border economies of scale on the asset management side can also be achieved by other means.”

The European Actuarial Consultative Group stressed that the review of the directive should not be about simply putting more money into IORPs, but enhancing clarity and transparency on pensions - especially about their safety and communicating the level of safety clearly to beneficiaries.

It added: “The emphasis should not be on whether Solvency II is the right starting point for pensions, since, in many cases, it just is not feasible to require more money to fund the pensions.”

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