PensionsEurope has cautioned the European Commission (EC) against a central European supervision approach for Institutions for Occupational Retirement Provisions (IORPs), warning that this would be "devastating" for the sector.

PensionsEurope welcomed the chance to respond to the consultation, which looked for industry views on plans to remove obstacles to financial market integration across the EU, and was highlighted as a "key part" of the Savings and Investments Union (SIU) strategy.

However, PensionsEurope questioned the impact of some proposals on the IORP market, warning that "only supervision at the Member State level can guarantee a cost-effective and fit-for-purpose approach".

Whilst the group acknowledged that European supervision could create simplification in some sectors, it argued that the EU supervisory framework should distinguish between market infrastructure and cross-border financial institutions offering a largely harmonised product on the one hand and domestic markets on the other.

"A uniform application of rules is beneficial where there is much cross-border activity and where economies of scale can be further improved," it admitted.

However, the group argued that, as occupational pensions are embedded in a member state pension landscape and labour market, superrvision of IORPs requires in-depth knowledge of national social and labour law.

"A trend towards more EU-level supervision is, given the heterogeneous nature of the European (supplementary) pensions landscape, therefore not expedient," the group stated.

"Supervision should be concentrated with the national supervisory bodies, while the focus at EU level should be to set a minimum threshold that national
legislation must meet."

In particular, the group pointed out that the features of IORPs diverge greatly from one Member State to the next and are directly linked to national law and the overall pension system.

"It requires a thorough understanding of the national context in order to be able to supervise this product," PensionsEurope stated.

"We therefore strongly believe that European supervision of IORPs would lead to an increase of administrative burden, due to inappropriate regulatory actions."

The group shared a similar sentiment when asked about the potential costs and savings for organisations associated with new direct supervisory mandates at the EU level, noting that whilst this could be beneficial for some, this may not be the case for the IORP market.

The group stated: "PensionsEurope believes that granting direct supervision to European Securities and Markets Authority (ESMA) could stimulate further integration and economies of scale, which could lead to lower costs for end-users in the long run.

"However, European Supervision for IORPs would be devastating for a large number of the IORPs resulting in a huge cost increase and ultimately a reduction in pensions for members and beneficiaries."

It also reiterated its argument that supervision of a sector heterogeneous across the EU and even within Member States should not be supervised centrally, warning that "from the perspective of IORPs, supervisory convergence is not a goal worth achieving – it would even damage our sector".

In addition to this, PensionsEurope argued that EU regulators are putting too much emphasis on the cross-border activity of IORPs, suggesting that there is no need for further supervisory convergence tools to address this.

The group also raised concerns in response to the EC's query as to whether European Supervisory Authorities (ESAs) should be empowered to issue a binding advice in cases where national supervision is deemed ineffective, warning that the wording of this "seems to imply a broad-sweeping power to provide binding advice, thereby overruling national supervision".

"If it is indeed intended as a general power, it would mean that the ESAs could effectively enforce EU supervision in case they saw fit. This would be inappropriate for European Insurance and Occupational Pensions Authority (EIOPA) in the case of IORPs," PensionsEurope stated.

"We have often seen that EIOPA does not have the knowledge of relevant local social and labour laws, which essentially govern the “product”.

"Consequently, the ESAs, in particular EIOPA, are in no position to issue binding advice regarding occupational pensions – or even evaluate properly the effectiveness of national supervision."

The impact of central supervision was not the only concern highlighted in relation to IORPs, as PensionsEurope also questioned the lack of proportionality in reporting requirements relating to derivatives transactions.

"With additional reporting requirements IORPs that currently make limited use of derivatives to hedge certain risks will stop using derivatives," it warned.

"As such, this will increase the risk exposure of those IORPs, which cannot be the purpose. Especially for horizontal regulation, it is important to introduce proportionality linked to the specific financial institutions.

"We agree that operational risk and cybersecurity should be taken seriously, but this should be done in an appropriate way, taking into account proportionality and keeping an eye on the cost efficiency of the measures taken."

In addition to this, PensionsEurope said it saw no benefit to adding IORPs to the scope of the Financial Collateral Directive (FCD), warning that this would "only increase costs for IORPs and ultimately reduce the pensions of the beneficiaries".

IORPs were not the only area of concern though, as the group also argued that the resources allocated to EIOPA for the Pan-European Personal Pension Product (PEPP) given the "very" limited use of PEPP are disproportionately high.

"Moreover, we reject any unnecessary expansion of EIOPA's staff and the resulting higher costs," it stated.

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