The sixth European Federation for Retirement Provision (EFRP) conference as well as the European Insurance and Occupational Pensions Authority (EIOPA) conference were held in Frankfurt at the end of November and were a one-off for at least two reasons.
First, the draft White Paper on pensions that many in the industry expected to be released in December was leaked to a few people in the audience, IPE among them. Second, the European Insurance and Occupational Pensions Authority’s (EIOPA) call for advice received a huge wave of protests, with attendees arguing that the solvency and funding provisions in the revised Institutions for Occupational Retirement Provision (IORP) legislation should not be similar to the Solvency II framework for insurance companies and should therefore not even be included in the 500-page consultation report.
Needless to say, the timing for holding the two conferences could have not been better. The whole industry is currently awaiting responses to the call for advice and a revised version of the White Paper. The conference proved once again that concerns over new regulations coming into the market are tangible, especially in the current financial context.
The question now is, what do the White Paper and the call for advice on the subject of revisions to the EU’s 2003 IORP Directive on workplace-based pensions tell us?
Looking into the details of the 10-page draft version of the White Paper obtained by IPE, the European Commission is focusing on several issues. First, the Commission is insisting on the need to support later retirement age, for which it will present a recommendation in early 2013 to restrict access to early retirement schemes by abolishing mandatory retirement ages.
Regarding the second pillar, the Commission will develop a code of good practice for occupational pension schemes, addressing issues such as the payout phase, risk-sharing and mitigation, cost-effectiveness, shock absorption and ways of avoiding pro-cyclicality in investments.
The Commission is finally planning to improve the quality of the third pillar and the protection and information of consumers via voluntary codes and possibly EU certification schemes for third-pillar products.
Nothing surprising so far then. However, as the draft version suggests, the current report remains provisional and there might be more to come in the final paper. In addition, though the industry welcomed the White Paper, many questioned the wisdom of releasing an important policy document when consultations on the second IORP Directive were ongoing.
Reacting to the leak of the White Paper, Jerry Moriarty, director of policy at the Irish Association of Pension Funds, argued that European member states are currently facing important ageing population challenges that diminish the strength of a state’s finances.
“In that context, something has to be done, as we cannot continue increasing expenditure on pensions if we do not have the financial resources to do so,” Moriarty said. “But the pension industry is already digesting a 500-page document on the review of the Institutions for Occupational Retirement Provision directive and it would have probably made sense to discuss the principles of the White Paper first, before moving onto the details that are now in the new IORP Directive.”
Of course, the pension industry was given until 2 January to respond to the call for advice, but 500 pages is plenty and the report - like most regulatory texts - is heavy going.
Among the main issues pointed out by several industry figures at the EFRP conference, one refers to incorporating Solvency II within the IORP II Directive. Indeed, the call for advice asks whether the solvency and funding provisions in the revised IORP legislation should be similar to the Solvency II framework for insurance companies. The audience therefore insisted that such rules on the allocation of capital had no place in the consultation paper.
Many also argued that Solvency II represents a real threat to company sponsors in terms of cost burden and could encourage employers to walk away from their schemes.
According to the industry, the new IORP Directive should therefore solely focus on promoting cross-border activity and harmonising defined contribution pensions since the first version of the directive failed to do so.
But until the results of the call of advice are revealed, the pension sector will have to ‘wait and see’, hoping that it will be once and for all exempted from the Solvency II-type requirements. One thing is certain though: 2012 will be action-packed on the regulatory scale.