22/12/2011
By Ilonka Oudenampsen
The European Federation for Retirement Provision (EFRP) supports the improvement of IORP governance and better communication of information to members and beneficiaries, the association announced today, in its finalised response to the European Insurance and Occupational Pensions Authority’s (EIOPA) draft response to the European Commission’s Call for Advice on the review of the IORP directive.
The EFRP said it will publish its full response on 2 January 2012, but already stated it strongly supports EIOPA’s draft response and believes there is a significant opportunity to enhance pensions in Europe through the proposed measures.
EFRP chairman Patrick Burke said: “The growth of defined contribution and hybrid pension systems across Europe is set to accelerate and EIOPA has recognised this fact in its proposals. This is a critical opportunity to deliver a strengthened European framework which will help European citizens plan for retirement. However, we strongly urge a re-think on changing the rules for pension security which weaken the system as a whole. The reasons for the review of security provisions remain unclear and unconvincing and early signals suggest that the social and economic impact would be horrendous. The rationale needs to be clarified and reconsidered before any proposal is made.”
In April 2011 the European Commission asked EIOPA for technical advice on how best to strengthen cross-border occupational pension provision, introduce further risk-based supervision of pension institutions and modernise prudential regulation for defined contribution (DC) pension schemes. EIOPA is now consulting stakeholders before submitting its advice to the EC.
In a statement, the EFRP said there is indeed a slow development of cross-border IORPs although this has not impeded the progress of cross-border pension provision and management. It added only very few EU member states would be within the scope of the changes proposed and those affected already have well-functioning supervisory structures.
The association welcomed more risk-based regulation of IORPs, especially in the fields of risk management, governance and communication to members, but believes capital requirements for IORPs should not be based on Solvency II legislation for insurance companies.
It warned that such a regime for pensions would have a negative impact on pension plan sponsors, members and beneficiaries, as inappropriate solvency requirements will lead to an unnecessary reduction in benefits, higher contributions and a shift in capital investment away from projects and corporates that would otherwise enable growth in the European economy.
Burke explained: “My greatest concern is that the steps considered in the Call for Advice will dramatically impact upon pension sustainability and adequacy across Europe. A rigorous impact assessment (which explores all options and recognises all existing security mechanisms) must be undertaken before revisions to the current security regime are considered. To undertake this assessment after a framework has been proposed in response to the Commission’s Call for Advice is to put the cart before the horse.”
The EFRP believes the required assessment must focus on three key areas, the first of which is a quantification of the likely additional funding costs that would arise under alternative frameworks. This should also take into account the impact on growth of the economy and the labour market if such funding is taken from corporates who would otherwise re-invest in capital or labour projects, from members whose discretionary spending is consequentially reduced and from the Exchequer as taxable profits are diminished to allow increased contributions.
Secondly, a full assessment must be made of the impact which these measures would have on adequacy and to which extent, if at all, this will result in employers watering down the benefits payable to members or shutting down their defined benefit arrangements entirely.
Lastly, the impact on asset allocation (equities to bonds) should be analysed, which any revision would bring about, the economic impact of such capital being taken from equity markets and the systemic concentration risks which arise as capital invested through the pensions system is herded in the same direction as that invested through the insurance industry.
The EFRP believes the debate on workplace pension provision and the rules by which workplace pensions are provided is a political one and it therefore calls for a political debate within the EC and the linkage of the revision of the IORP Directive to other EC pension-related initiatives, such as the EC White Paper on Pensions.
The full EFRP response will be published on the association’s website on 3 January 2012.
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