EUROPE - European pensions experts have rejected Solvency II as a starting point for any revisions to the IORP directive and urged the European Insurance and Occupational Pensions Authority (EIOPA) to conduct a thorough impact assessment before making any legislative proposals.
In their responses to EIOPA's Call for Advice on the issue, many acknowledged that aspects of Solvency II could be successfully implemented within a new directive on Institutions for Occupational Retirement Provision (IORP).
Yet the hot topic of capital requirements - as well as such issues as holistic balance sheets and recovery periods - have faced criticism.
The EIOPA Occupational Pensions Stakeholder Group (OPSG) agreed that a holistic framework "might be helpful", but it rejected the term 'holistic balance sheet' (HBS), arguing that it did not refer to a balance sheet in an accounting sense and failed to comply with IFRS.
In its response to the Call for Advice, it said: "(HBS) implies that all of the elements can be quantified precisely, whereas the value assigned to some of the components needs quite some judgement and is likely to be subjective and approximate, and might perhaps be better understood by considering a range of outcomes rather than a single discounted value of future cash flows."
The OPSG said an impact assessment should be conducted before any decision is taken on whether to include a holistic framework in the revised directive.
The European Federation for Retirement Provision (EFRP) also welcomed the idea of taking into account all the risk instruments an IORP can have, but it warned that the HBS was too complex to serve as a primary tool of supervision.
In its response, it said: "Workplace pensions are based on social and cultural traditions and strongly linked to first-pillar pension provision in the different member states.
"Pension security is about much more than scheme funding levels alone, and a single approach to pension security, which only focuses on short-term solvency, will jeopardise many existing European pension systems."
The major bone of contention, however, remains the directive's possible solvency requirements.
Both the EFRP and the OPSG strongly rejected the option of applying Solvency II rules for calculating capital requirements within the new directive.
The EFRP said: "A broader approach is required, taking into account the full range of mechanisms that pension institutions across different member states now use to ensure that pension incomes are safe and secure.
"An IORP can, for example, call on other kinds of risk-mitigating elements, such as a protection fund and a sponsor guarantee.
"Solvency capital requirements in this context are superfluous, costly and will likely lead to a further decline of employers' willingness to offer supplementary pensions."
The European Private Equity and Venture Capital Association (EVCA) also argued that such capital requirements would limit the investment available for capital projects across Europe.
EVCA chairman Karsten Langer said: "In their effort to minimise systemic risk, regulators are in danger of negating the stabilising effect of long-term investors in global financial markets and reducing the ability of institutions to invest in the real economy.
"An impact assessment covering the full macroeconomic implications of the review of the IORP Directive must be taken prior to issuing any proposals for reform."
According to the EFRP, the shorter recovery periods of a Solvency II set-up would also force IORPs to adopt more pro-cyclical investment policies, having an impact on not only the pensions industry, but the European economy as a whole.
The OPSG added: "Recovery periods, in case of underfunding or in case of insufficient assets to comply with the solvency requirements, should recognise the nature of pensions being different from insurance.
"The recovery periods should be long enough - years are far more appropriate than months - and should be flexible."
In its response, Aon Hewitt argued against legislative changes that would "increase the cost for employers" rather than "expand the availability of occupational pension arrangements for employees".
Leonardo Sforza, head of research and EU affairs at the consultancy, said: "Further tinkering with the structure of the EU pension fund directive is not required.
"What is needed is a common definition of what constitutes cross-border activity and greater simplification of the statutory requirements for setting up cross-border arrangements."