IORP problems for CEE states

04 October 2007

The EU pension directive is having more of a negative than a positive affect on the pension systems of central and eastern European (CEE) countries, a conference in London's Chatham House was told.
 
The second pillar pension systems in most CEE countries differ from the voluntary occupational pension schemes in western European countries in that most are mandatory and the assets are not held by the employers, delegates from the region stated.

"Most of the countries that entered the EU after IORP was signed have schemes that are not covered by the directive’s framework," said a delegate at the conference.

As a result, the CEE states are being required to set up yet another pillar in the pension system to comply with the IORP directive, the conference heard.

Later this year Hungary’s finance minister is expected to unveil a new pensions vehicle that the will ensure the country complies with the directive’s requirements.

"Why are we obliged to offer another pillar which will compete with the current third or more likely with second pillar?" asked Csaba Nagy, managing director of OTP, Hungary's largest private pension fund.

Nagy said the IORP directive was a threat to Hungary's third pillar pension schemes. New pension insurance companies setting up IORP schemes would draw money from third pillar schemes without increasing personal retirement provision.

"But it will create marketing and transfer costs which the pension fund members will have to pay for," he said.

However, conference attendees said they doubted the issue would come up during the planned review of the directive in early 2008.

Nagy noted that experts in some CEE countries had considered taking the EU to court over discrimination under the IORP directive.

Another threat to Hungary's third pillar was the granting of employees benefit packages rather than payments into a third pillar pension fund, Nagy said.

"Employees can now choose what they are using the money for," he explained. "I think many will choose their health fund or food vouchers over their pension fund."

Nagy also pointed out that the EU treated CEE second pillar pension systems as an extension of the first pillar. But he noted that the money in the occupational pension funds could not be used in the government's balance sheet to reduce the deficit in order to fulfil the Maastricht criteria and introduce the euro.

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