EUROPE - The European Association of Paritarian Institutions of Social Protection (AEIP) has warned the Solvency II proposals must be modified to suit main IORP directive principles for pension schemes.

"Concerning pension schemes operations, whether managed by non commercial collective insurance undertakings or by institutions for occupational retirement provision (IORP), the Solvency II approach should be modified for IORP activities and their specificities in coherence with main IORP directive principles," said the organisation.

AEIP argues long-term investment in real assets instead of nominal assets can diminish the cost of the pensions, while Solvency II and actual nominal short-term solvency requirements is likely to "considerably" increase the costs of the benefits to the same value.

The very long-term nature of liabilities should be able to "reap the gains of diversification by investing in a broad range of asset classes without too restrictive limits on their investment policy".

Solvency II proposals should adopt a more principle-based approach especially on first pillar rules for collective pensions operations, suggested AEIP.

Also, the regime should give pension funds the ability to capture risks on an "appropriate basis", said AEIP, mentioning, for instance, the use of Asset Liability Management (ALM) for these long-term operations within this principle-based approach.

"The one-year time horizon principle and parameters of the current QI3 module "market risk" cannot be applied as such to these long-term operations," said AEIP.

It added: "Undertakings carrying out such operations should be encouraged to invest according to the prudent person principle in order to achieve the best outcome for plan members."
Moreover, Solvency II needs to take into account specific governance rules, and any approach on solvency II should take into account the existing national social and labour legislatio, suggested AEIP.

The European Federation For Retirement Provision (EFRP) already warned earlier this month implementing the widely-criticised Solvency II framework on pension funds could increase occupational schemes' liabilities by as much as 60%.

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