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Insurance Europe: Appropriate protection for all beneficiaries is crucial
The main objective of the European Commission’s current review of the EU Institutions for Occupational Retirement Provision (IORP) Directive should be to guarantee an appropriate level of protection to beneficiaries of IORPs. Insurance Europe believes that, to achieve this, a combination of quantitative, qualitative and reporting requirements is needed. Thes proposal by the Commission, which does not include quantitative requirements, is therefor e incomplete.
Insurers are significant providers of long-term savings, pensions and annuity products, including occupational pensions, and will be subject to the new Solvency II regulatory regime from 2016. Solvency II will introduce a common European risk-based capital regime that ensures high levels of consumer protection.
With Solvency II entering into force shortly and the capital rules of the IORP Directive remaining unchanged, an unlevel regulatory playing field will be created between insurers and pension funds operating in the same markets and offering similar services. In order to achieve fair competition between providers and similar protection for beneficiaries, Insurance Europe strongly supports the application of the “same risks, same rules” principle to all financial institutions providing occupational pension products, taking into account economically significant differences between the providers.
"Consumers deserve similar levels of protection, irrespective of whether their occupational pension is provided by a pension fund or an insurance company", said Insurance Europe director general Michaela Koller. "To ensure that this is the case, we call on the European institutions to include a clear timeline in the IORP Directive for the Commission to develop appropriate quantitative requirements."
Insurance Europe believes that the inclusion of the risk evaluation for pensions in the governance requirements of the IORP Directive will provide pension funds with the opportunity to assess the real risks of their business. This risk evaluation should truly reflect the effectiveness of a pension fund’s security mechanisms and its ability to comply with the benefit promises.
The transparency requirements included in the IORP review must ensure that all differences between providers, products and risks are made apparent to beneficiaries in an appropriate and understandable way.
"The insurance industry supports the provision of high-quality and appropriate information to beneficiaries about their pension entitlements", said Koller. “This will enable them to make informed decisions and will raise awareness of the importance of saving for the future, especially among the younger generation."
NAPF
Commenting on the new requirements, Joanne Segars, Chief Executive, NAPF, said: “Whilst the NAPF strongly supports initiatives to ensure that pension funds are well run, this new Directive simply adds further costs and administrative burdens without delivering practical benefits for members. The new Directive is not accompanied by an impact assessment, but the EC’s briefing papers estimate the one-off implementation costs of the new Directive at €22 per member – a cost of around £328 million for UK private sector schemes – with a further £7.5 million per year in annual recurring costs."
Ms Segars added: “The NAPF is deeply concerned by the lack of rigour behind the new IORP Directive proposal – particularly the absence of an approved impact assessment. EU interventions can have major ramifications for pension schemes, and it is important that their effects are thoroughly considered to get it right.”
The NAPF warns that the standardised EU-wide ‘Pensions Benefit Statement’, which schemes would have to send to members, takes no account of the diversity of pension systems across the EU’s 28 Member States. The ‘Risk Evaluation for Pensions’ report would duplicate the risk assessments that good pension schemes already carry out. The requirement for professional trustee qualifications points in the right direction, but should be amended to recognise the good progress the UK has already made by implementing The Pensions Regulator’s requirements for trustee knowledge and understanding.
PensionsEurope
PensionsEurope welcomed the Commission’s commitment to high standards of pension scheme governance and communications, but cautioned that some of the proposals risk creating unnecessary extra burdens for schemes.
Joanne Segars, Chair of PensionsEurope, said: “PensionsEurope welcomes the fact that this proposal does not contain new solvency capital requirements for IORPs. Solvency II-like capital requirements come with high costs, which would make it difficult for sponsoring companies to provide workplace pensions. However, we will pay attention to the delegated acts relative to the Risk Evaluation for Pensions (Articles 29 and 30).”
She added: “PensionsEurope’s position is that IORPs are social institutions operating on financial markets, protected and regulated by national social and labour law. This is the approach that should guide the approach to revision of the IORP Directive. Nevertheless, we welcome the proposal of the Commission to lift restrictions on investments in long-term assets.”
The Chief Executive of PensionsEurope, Matti Leppälä, commented: “PensionsEurope also warns about the costs arising from IORP II. For example, the Pension Benefit Statement, which requires IORPs to provide a pension benefit statement for the individuals every 12 months and free of charge, will drastically raise costs1 in some Member States, without sometimes bringing real added value to members and beneficiaries. We therefore need an adaption of the information requirements based on the pension promise given. DB, DC and hybrid schemes bring different benefits, choices and risks to the members. This needs to be taken into account. Unnecessary costs must be avoided. At the end, any extra costs will be paid by the members and the beneficiaries. In general, it is important to respect diversity of occupational pensions in the EU and keep in mind that IORP II is supposed to be based on a minimum harmonisation approach.”
Finally, PensionsEurope regrets that the Commission does not modify provisions on funding of cross-border schemes in the proposal. PensionsEurope would have supported a reform of the rules on funding of cross-border schemes and is of the opinion that this would have been relatively easy to implement and would bring cross-border schemes into line with all others.
Dutch Pensions Federation
The European Commission's proposals for pension fund communication within the revised IORP II Directive are heading in the wrong direction and carry the risk of "non-directed overkill", the Dutch Pensions Federation has warned.
In a preliminary response to the reviewed Directive, it said the very experienced Dutch pensions sector was now focusing on a "demand-based communication to participants, presented in layers". The Federation referred to the suggested introduction of an annual Pension Benefit Statement, a two-page document pension fonds must issue on paper or through their websites.
Full press release (in Dutch) © Pensioenfederatie
Further reporting by IPE (registration required)
ESY
The Finnish pensions association has criticised the requirement in the European Commission’s new IORP Directive for pension providers to issue scheme members with a uniform pension benefit statement for being unfair competitively. They said the way the standardised communication to customers was formulated was wrong and having such a requirement meant pension funds had a bigger administrative burden than life insurance companies.
Ismo Heinström, lawyer for the association, commented: "It is regrettable that the pension benefit statement is formulated as if an IORP were an investment fund with totally different principles and objectives." The kind of information demanded in the statement was not provided by insurance companies which had similar conditions, he said. He asked whether an IORP should therefore have to provide this extra information, when the commission laid weight on creating a level playing field for pension providers.
The requirement would result in an unnecessary increase in costs for both the IORPs and the employers behind the schemes. On the whole, Finnish occupational pensions funds were well run, he said, and the institutions had so far provided their members with sufficient information. The Dutch Pension Federation previously criticised the revised IORP Directive’s proposals for a uniform statement as "overkill".
Full IPE article (registration)
TELA
The European Commission should be finding ways to stimulate demand for long-term investments rather than simply remove barriers to long-term investment by pension funds, according to Finnish pension fund alliance TELA.
Reacting to the recent publication of the IORP II Directive, Ilkka Geitlin, legal counsel at the association, said: "I find it disturbing that the Commission is publishing and preparing multiple initiatives to encourage long-term funding and investments, [yet] little or no attention has been paid to analyse or collect data on possible demand."
TELA represents providers of Finland’s statutory earnings-related pension insurance.
Reporting by IPE (registration required)
Representatives of the German industry are concerned that the regulation in question would prevent companies from running parts of the administration of their pension plans themselves. “This would be a major blow to company pension schemes, as, currently, the employer is often taking on administration and with it the costs of running the pension plan,” Georg Thurnes, a board member at Aon Hewitt Germany said. Bernhard Wiesner, senior vice-president of pensions and related benefits at Bosch Group, agreed the regulation would "deal a blow to the heart of company pension plans".
Full article (IPE registration required)
European governments have criticised the "fundamental" lack of detail provided by a recent consultation on changes to the IORP directive, calling on EIOPA to provide more clarity on a number of issues.
The German ministry of finance insisted it would resist any proposals deemed to "weaken" the country's pension system and urged the European Commission to conduct "unbiased" impact studies on any proposed changes.
The UK's Treasury criticised that the arguments in favour of reform - to introduce an even playing field between the insurance industry and pension funds, as well as to allow for a greater number of cross-border schemes - required proposals of "such magnitude" and carried "such a high risk" that they were "highly disproportionate to the problems they purport to address."
The UK’s Pension Minister Steve Webb urged against EU cross-border "excessive harmonisation". Later, he softened this with approving nations "learning from each other".
The Dutch ministry for social affairs, meanwhile, questioned the directive's approach to a 'holistic balance sheet' (HBS), saying several areas still required clarification. It said it was currently unclear how the directive would distinguish between unconditional, conditional and discretionary payments. "This is an interesting distinction, but it is not clear to us how the allocation of the benefits will be made," the ministry said, arguing that the impact of HBS would be largely dependant on how such factors were interpreted and that the differentiation would have "tremendous consequences".
Full article (IPE registration required)
In a piece for IPE, Jeremy Woolfe writes that on stocktaking, the consensus turned out as "not too bad, but could do better".Twenty-three countries have managed to raise their official pensions age, and seven have linked it to longevity, Commissioner László Andor was pleased to report. Equal treatment for the female gender remains one of the vital issues he noted. Commissioner Michel Barnier emphasised that the subject of cross-border pensions needed a good looking into, and this was something that came up more fully the following day, at the presentation of IORP II Directive.
Markus Beyrer, head of BusinessEurope, made it clear that pension funding has no "need for any extra capital". That is a sentiment expressed at virtually every conference on the subject of pensions. And, sadly, it ignores the key challenges of increased longevity, low fertility and the prospect of soup-kitchen lives for future retirees.
Full article (IPE registration required)
See also: Commission adopts legislative proposal for new rules on occupational pension funds (IORPs)