Brussels, 06/03/2011 (Agence Europe) - It took no more than a mention from the European Commission regarding possible review of the pension funds directive (inspired by the Solvency II Directive) to provoke a general outcry on Thursday, 1 March from employers' representatives (BusinessEurope, CEEP and the UEAPME), workers (ETUC) and industrial associations (AEIP, EVCA, EFRP and the EFAMA).
These organisations declared in a joint press release: “We believe that it is dangerous to apply legislation made for insurance companies to IORPs. There are fundamental differences between them. Any effort to harmonise the regulatory regime is based on flawed logic and could have unintended consequences on pension plan members, IORPs and the economy as a whole by impeding growth and job creation”.
Such a possibility is mentioned in the White Paper on pensions presented by the Commission on Thursday 16 February (EUROPE 10555). This document sought to promote the development of cross-border private saving schemes (out of 120,000 existing schemes in the EU, only 84 are private), whilst guaranteeing better control of their solvency.
In the White Paper, the Commission explains that during 2012 it wanted to proceed to a review of the 2003/41/EC directive on the activity of occupational pension fund bodies and their monitoring (directive IRP). The White Paper indicates that, “the aim of the review is to maintain a level playing field with Solvency II and promote some cross-border activity in this field and to help improve overall pension provision in the EU. This will help address the challenges of demographic ageing and public debt”.
In the same way as the Solvency II regulation extended its monitoring scope through an examination of the global financial situation of an insurance company, review of the IRP directive could use the same monitoring tools for the professional pension fund institutions: quantitative requirements (increasing the level of own funds to increase solvency margins); qualitative requirements (supervision of governance system, namely, the way in which risk is managed); information and communication requirements (the transfer of key information on financial performance, risk profiles and uncertainty measures).
Whilst pointing out that the Commission had not yet made any precise proposals, the European commissioner for the internal market and services, Michel Barnier, declared that they certainly had to draw inspiration from rules developed in other financial sectors, particularly the useful elements of Solvency II, because the financial crisis has revealed the need for, “robust rules to protect pensioners and enable pension funds to perform their role of economic stabilisers”. Nonetheless, he also asserted during the public hearing on the review on the professional pensions directive on Thursday, 1 March that there was no question of “copying and pasting this approach onto the pension fund sector”.
Different possibilities for taking action mentioned by Barnier are aimed at “shielding liabilities against excessive volatility and allowing supervision authorities sufficient time to avoid pro-cyclical responses”. In this respect, the Commission's future proposals, although not identical, are expected to be similar to the rules framing the insurance industry. Therefore, increasing pension fund solvency mainly translates into reduced risk resulting from, “supplementary contributions, conditional indexation, the possibility of renegotiating pension schemes and affiliation to guarantee systems”. Similarly, the increase in the level of own funds was also mentioned, although in a rather elusive way, as were the stricter monitoring mechanisms.
Such a review would have a noticeable financial impact on complementary pension systems, both for pensioners and pension funds, claimed representatives from the employers, workers and industries in unison. Philippe de Buck, the director-general of BusinessEurope asserted that, “applying Solvency II type rules to pension funds would make these schemes too expensive for many companies, forcing them to close or stop offering them to new entrants. This will not improve the adequacy of the pensions system”. Andrea Benassi, Secretary General of the UEAPME, demanded that the European Commission's next raft of proposals should take into account the specificities of this regime and “must not be mixed up with financial market regulations such as SOLVENCY II, which applies to private and commercial financial institutions”.
The effects of the 2008 financial crisis was felt particularly hard by the OECD states' pension funds, with a fall in investment of almost 23%, the equivalent of around €4,100 billion, according to an OECD report. Falls on the stock market were an essential ingredient because shares represented more than a third of all assets invested. The question of guaranteeing the solvency of occupational pension institutions is therefore at the heart of the Commission's proposals, which also wants a rapid revision of the IRP directive. Nonetheless, Barnier was keen to reassure all the different actors that, “it would probably not be feasible to immediately apply stricter rules to the outstanding liabilities of pension funds. We must therefore find alternative solutions, including appropriate transitional arrangements”. (JK/transl.fl)