The European Commission and the European Insurance and Occupational Pensions Authority (EIOPA) continue their preparatory work on the revision of the Pension Fund Directive (“the IORP Directive”). As an important part of this, EIOPA has just launched the Quantitative Impact Study (QIS) on changes to the IORP Directive. The revision of the IORP Directive, including the QIS, is a deeply political discussion where the voice of social partners, pension funds and the wider pension industry should be heard.
The process of revising the IORP Directive must be driven by realistic timelines, and truly aim at improving the adequacy and sustainability of occupational pensions in Europe. This fits with the European Commission’s White Paper on Pensions and the Commission’s 2012 Ageing Report findings that, in an environment of strained public finances and rapid demographic ageing, occupational pensions must play a more prominent role in retirement provision.
The QIS, which is an important step in the revision process, will have a big impact on the valuation methods for pension assets and liabilities, and thus on the willingness of enterprises to continue (or begin) to offer pensions through the workplace.
The cornerstone of the QIS is the Holistic Balance Sheet (HBS) tool. EFAMA continues to question the appropriateness of this tool and fears that the outcome of the exercise will be to impose a Solvency II-like framework for pension fund supervision. EFAMA's concerns have been reinforced after the public consultation run by EIOPA on the draft technical specifications of the QIS in July 2012.
EFAMA therefore welcomes the recognition from EIOPA that the very feasibility of the HBS tool is to be further investigated:
“The adoption of the holistic balance sheet in practice needs to be further investigated with respect to the feasibility of developing a methodology for the quantification of the security and benefit adjustment mechanisms and the effectiveness in terms of costs and benefits of such a methodology. Further information is needed on the feasibility in practice of a common level of security and its effectiveness in terms of costs and benefits, given the diversity of IORPs in the different Member States…”
EFAMA also welcomes that EIOPA has recognised that more work needs to be done on a number of issues related to the HBS tool (including sponsor support, pension protection schemes and risk margins). EFAMA therefore regrets that the European Commission has not identified these issues in the final QIS specifications.
The European Commission has announced an initiative on long-term investing (which will include a Green Paper on long-term investing). At the same time, the “trilogue” discussions on Solvency II are further considering the confidence level and the prudential treatment of long-term investments within the Solvency II framework. These issues are very important to IORPs, which are long-term investors by their very nature. As such, they contribute to the stability of financial markets and to financing growth and jobs in Europe in line with the EU2020 Strategy. Undue risk weighting would further discourage long-term investing.
EFAMA thus calls upon the European Commission to incorporate the results of the debate on long-term investments into the revision of the IORP directive, to allow European IORPs to continue financing long-term investments. At the moment, it feels as if the potential new IORP rules push for short-term security at the expense of long-term investment and pension adequacy. Whilst it is important to ensure the right balance between security and investment, it is also important to avoid contradictory processes within the European Commission.
In view of the ongoing impact studies and future revision of the IORP Directive, EFAMA remains committed to working with the European Commission and EIOPA to ensure that the right decisions are taken for employers, workers and the pensions sector, as well as for the economy as a whole and the future of occupational pension provision in Europe.
Full press release
© EFAMA - European Fund and Asset Management Association
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