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The Commission is set to propose revising the rules on pension funds, with a view to enhancing their role in financing the economy

In this interview with Europolitics, Matti Leppala, chief executive and secretary-general of PensionsEurope, lays out his point of view on the review of Directivea2003/41/EC on institutions for occupational retirement (IORP), which is due on 27 March. This review is one of several actions to boost funding for European growth that the Commission will present that day.

Are you happy with the fact that the issue of solvency is not expected to be included in the review?

We have been very much against the idea of establishing for pension funds and other institutions for occupational retirement provision (IORPs) a European risk-based capital requirement framework similar to the one set out in the Solvency II legislation for insurance companies. If we want to have long-term investments into what is in such solvency frameworks considered risky areas, such as infrastructures or listed companies or venture capital, and if pension funds are subject to a solvency framework which put high capital requirements on all these investments, then they will not be able to invest. On the one hand, the Commission is pushing to identify pension funds as long-term investors that are important for growth, and on the other hand, it is pushing for a Solvency II-type of a framework. That does not make sense.


It is very important to understand what the short-term risks are for such long-term liabilities. Banks and insurance companies can go bankrupt. This is not really the case for pension funds, because their liabilities are long term and people cannot do a "pension fund run" in a way they can do a "bank run". Initially, Commissioner Michel Barnier wanted to include such a solvency framework in the review of the IORP directive, but he dropped the idea last May. Nevertheless, preparatory work is continuing this year at the level of the European supervisory authority EIOPA, which is planning to open a three-month consultation on the issue by the end of September.

What are the sensitive aspects of the Commission's proposal for the pension industry?

Risk evaluation of pension funds is one of our major problems. Some of our members are concerned that the proposal is too vague on this point. The proposal gives EIOPA the power to develop the technical part of this issue and to try to introduce the risk-based solvency framework through these measures. We are concerned that this process would not be as democratic as a co-legislative process should be.

As for the measures aimed at improving governance and disclosure, we are in favour. However, they cannot be too costly and there are some problems there.

Can you elaborate?

The measures are very similar to the ones foreseen in the Solvency II regime for insurance companies. These do not sufficiently take into consideration that pension funds are not the same type of financial market institutions as insurance companies. Pension funds are more like social institutions based on collective agreements concluded by social partners. For instance, our members have problems with the disclosure requirement. They think that the social partners should be able to decide what is feasible and what is not. We do not see the benefits for pension funds of introducing highly burdensome rules designed for products sold in the markets.

What other important measures are foreseen that would help the financing of the EU's economy?

The proposal would change the funding requirements for cross-border pension funds in order to facilitate their development. These schemes have to be fully funded at all times and the idea is that cross-border funds should also be granted recovery periods from underfunding, similarly to other pension funds. The problems with cross-border funds - which are few and far between - are definitely related to taxation and to the differences in national social and labour laws, but also to the prudential requirements. Furthermore, in the envisaged IORP review there are provisions that would eliminate certain restrictions on investments in pension funds.

Review of IORP directive

The Commission will present, on 27 March, a review of Directive 2003/41/EC on institutions for occupational retirement with a view to stimulating the role of these institutional investors in financing European growth. The review also aims to promote saving for retirement at a time when the European population is ageing. The draft text - which will not be significantly amended - aims to enhance good governance of these funds, ensure their members and beneficiaries receive relevant information, and promote the development of cross-border pension funds. It does not provide for the introduction of a solvency scheme (capital requirements, for example) similar to that which applies to insurance companies (Solvency II directive) - this is a very sensitive element.
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Publication:European Report
Date:Mar 20, 2014

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