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Timelines: Forewarned is forearmed

On 2 October, when the European Insurance and Occupational Pensions Authority (EIOPA) submitted its technical standards to the European Commission on the conduct of the quantitative exercise for the revised IORP Directive, a number of concerns were raised within the pensions industry.

Questions were immediately asked about Brussels’ timetable, and the industry wheeled out prior criticisms of the European Commission’s decision to introduce a draft version of the revised directive by the summer of 2013.

At the end of August, and just after EIOPA received 117 responses to its consultation
paper, it recommended launching the formal quantitative impact study (QIS) at a later stage during the autumn, rather than the date previously set by Brussels. Needless to say, this would have delayed, yet again, the entire process for the introduction of the revised directive.

But it turned out to be nothing more than a vague suggestion and after further talks,
Brussels and EIOPA decided to stick to the original timetable.

According to various pensions experts, if the Commission takes on board the recommendations made by EIOPA in its technical standards to conduct further QIS exercises to fully assess pension issues, it might have no choice but to delay the introduction of the revised IORP framework.

In the UK, James Walsh, senior policy adviser at the National Association of Pension Funds, insists there would be no possibility for the Commission to draft a directive before next summer if more quantitative impact studies are conducted. “This marks a real tension between EIOPA and the Commission,” he adds.

But of more concern than the timetable is reporting requirements which have, so far, been unaccounted for. The focus has instead been on capital requirements, the first pillar of the directive.

In its response to the QIS consultation, the European Central Bank raises the issue, saying that future reporting requirements for pension funds – similar to those developed under Solvency II for insurance companies – could contribute “significantly” to the information required by the European System of Central Banks (ESCB) under a ‘steady-state approach’ and harmonise data for pension funds. It is a fair point, but one must still wonder what will be the real cost incurred by pension schemes if they are compelled to increase their reporting as required under the Solvency II framework.

In recent months, the cost burden associated with such reporting obligations has probably been the subject of numerous private conversations between insurers and pension funds. The former have tirelessly warned the latter not to underestimate the cost of extra reporting. Insurance companies are well aware of the impact of such requirements.

The fact that EIOPA moved to review some of the proposals in July should come as little surprise. The authority published a series of updated reporting guidelines and templates bringing further clarifications to the reporting issues under Solvency II. According to EIOPA, the changes agreed were made to take industry concerns into account.

For now, such concerns are not at the top of the pensions agenda. After all, the industry is only on the cusp of QIS 1 for the new IORP Directive, and more pressing concerns need to be addressed first. If the EC sticks with the recommendations made by EIOPA to conduct further impact studies, there could be plenty of time for pension figures to consider the matter more fully. But, as they say, forewarned is forearmed.CECILE SOURBES

On 2 October, when the European Insurance and Occupational Pensions Authority (EIOPA) submitted its technical standards to the European Commission on the conduct of the quantitative exercise for the revised IORP Directive, a number of concerns were raised within the pensions industry.

Questions were immediately asked about Brussels’ timetable, and the industry wheeled out prior criticisms of the European Commission’s decision to introduce a draft version of the revised directive by the summer of 2013.

At the end of August, and just after EIOPA received 117 responses to its consultation
paper, it recommended launching the formal quantitative impact study (QIS) at a later stage during the autumn, rather than the date previously set by Brussels. Needless to say, this would have delayed, yet again, the entire process for the introduction of the revised directive.

But it turned out to be nothing more than a vague suggestion and after further talks,
Brussels and EIOPA decided to stick to the original timetable.

According to various pensions experts, if the Commission takes on board the recommendations made by EIOPA in its technical standards to conduct further QIS exercises to fully assess pension issues, it might have no choice but to delay the introduction of the revised IORP framework.

In the UK, James Walsh, senior policy adviser at the National Association of Pension Funds, insists there would be no possibility for the Commission to draft a directive before next summer if more quantitative impact studies are conducted. “This marks a real tension between EIOPA and the Commission,” he adds.

But of more concern than the timetable is reporting requirements which have, so far, been unaccounted for. The focus has instead been on capital requirements, the first pillar of the directive.

In its response to the QIS consultation, the European Central Bank raises the issue, saying that future reporting requirements for pension funds – similar to those developed under Solvency II for insurance companies – could contribute “significantly” to the information required by the European System of Central Banks (ESCB) under a ‘steady-state approach’ and harmonise data for pension funds. It is a fair point, but one must still wonder what will be the real cost incurred by pension schemes if they are compelled to increase their reporting as required under the Solvency II framework.

In recent months, the cost burden associated with such reporting obligations has probably been the subject of numerous private conversations between insurers and pension funds. The former have tirelessly warned the latter not to underestimate the cost of extra reporting. Insurance companies are well aware of the impact of such requirements.

The fact that EIOPA moved to review some of the proposals in July should come as little surprise. The authority published a series of updated reporting guidelines and templates bringing further clarifications to the reporting issues under Solvency II. According to EIOPA, the changes agreed were made to take industry concerns into account.

For now, such concerns are not at the top of the pensions agenda. After all, the industry is only on the cusp of QIS 1 for the new IORP Directive, and more pressing concerns need to be addressed first. If the EC sticks with the recommendations made by EIOPA to conduct further impact studies, there could be plenty of time for pension figures to consider the matter more fully. But, as they say, forewarned is forearmed.

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