Actuaries have expressed reservations at the recent overhaul to the Europe-wide directive on the supervision of institutions providing occupational pensions
Yesterday, the European Commission published the draft version of its directive on the activities and supervision of institutions for occupational retirement provision (IORPs). It said the proposed revision of the directive would strengthen the internal market, increasing cross-border provision and making IORPs better governed and more transparent.
The proposal has four objectives: to remove prudential barriers for cross-border IORPs; to ensure governance requirements on key functions such as risk management, internal audit and actuarial function; to introduce a standardised Pension Benefit Statement to better inform schemes and members about their individual retirement entitlements; and to lift investment restrictions to allow occupational pension funds remain free to invest in infrastructure and unrated loans.
It did not consider the introduction of new solvency rules, as they are not relevant to defined contribution schemes.
But Dave Robert, senior consultant at Towers Watson, said he was disappointed that the proposal to ensure cross-border pension plans had to be fully-funded at all times had not been dropped. He said removing obstacles to cross-border provision of services, could create significant funding problems for some schemes in the event of Scotland voting in favour of independence from the rest of the UK.
Roberts also said it was ironic that the directive intended to address perceived poor governance and a lack of transparency in pension schemes but gave little regard to the commission's own guidelines on governance and transparency, failing to set out why action is needed at EU level.
He was critical of commission estimates that the proposal would involve a one-off adjustment cost in the short term to schemes/employers of around 22 per member, and recurrent additional costs of between 0.27 and 0.80 per member and per year.
'Although the draft directive states that it is "accompanied by an impact assessment report", a two-paragraph reference falls way short of a report,' said Roberts.
'We await something more comprehensive, but are not reassured by the little that we have seen. On-going annual costs are suggested to be up to 0.8 for each member (although the previously-leaked draft suggested up to 3). These numbers are unreliable, but even at this level, for DC will create significant difficulties.'
Jane Beverly, head of research at actuarial firm Punter Southall said the proposal as it stands is fundamentally flawed.
'The directive should focus on high-level principles for good communication rather than getting bogged down in prescriptive detail,' she said.
However, Nick Salter, president-elect of the Institute and Faculty of Actuaries welcomed the lack of change to the area of financial solvency for IORPs and praised the commission's recognition that more work still remained in this area.
'The IORP directive by the European Commission seeks to improve the flow of information to pension scheme members and enhance the governance of occupational pension,' he said.
'IFoA welcomes the lack of change to the area of financial solvency for IORPs and the commission's recognition that considerable work remains to be done in this area. We will continue to work closely with the European Insurance and Occupational Pensions Authority to better understand the assessment of financial solvency for IORPs.'
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.'
She added 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.'
