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IORP II

Earlier this month the ABI attended a stakeholder workshop jointly hosted by the Department for Work and Pensions (DWP), The Pensions Regulator (TPR) and HM Treasury (HMT).

The purpose was to update stakeholders on the state-of-play and get input on the government’s strategy.

They also shared their thoughts on the effect of the current text on domestic pensions issues, and TPR presented their ongoing work with EIOPA.

The government confirmed that whilst Solvency II capital standards were off the agenda for the time being, this was by no means the likely final outcome on IORP II.

They outlined the background behind the proposal, including the European Commission’s aims:

  • Removing barriers to cross-border trade
  • Increasing consumer protection
  • Avoiding regulatory arbitrage (creating a level-playing-field)
  • Promoting long-term investment/infrastructure

Before the proposal was published, however, the European Commission Impact Assessment Board had questioned:

  • What the problems being addressed actually were
  • Why Member States couldn’t deal with these problems themselves, given the extremely low incidence of cross-border schemes i.e. why EU action was needed at all.
  • Why the European Commission hadn’t identified any alternative options
  • Whether the proposals were actually effective i.e. what the benefits of the proposals were in relation to the cost

The first Council Working Group took place on Wednesday 21 May, 2014 and the UK (and other Member States) made representations:

  • Questioning the timing of (at the tail-end of Commissioner Barnier’s term), and justification for (no sign-off from the Commission’s impact assessment board) the European Commission’s proposal.
  • They objected to the proposal on the grounds of subsidiarity (pensions remain a Member State competence) and proportionality (the draft proposals are both burdensome and detailed, without offering any corresponding benefit for pension scheme members).
  • They questioned whether there was not a more light-touch option, rather than the partly maximum harmonisation approach taken by the European Commission.
  • The European Commission’s original White Paper on pensions had encouraged pensions to be more multi-faceted in the face of decreasing state pension provision. This revised IORP proposal does not fit well with these objectives.

However, whilst a large number of Member States don’t see the benefit of the proposal, there is a sense of “fatalism” amongst the UK’s traditional partners on this issue i.e. acceptance that something will happen, and therefore willingness to cooperate on the drafting of the detail of the proposal. Other Member States for which this proposal will have no impact still have a vote in the Council, so the UK will have to work very hard behind the scenes to ensure an optimal outcome for the UK. Another Council working group meeting is likely to be scheduled at the end of June.

On the UK’s position:

  • The plan is to continue to oppose the proposal on the grounds stated earlier – principles of proportionality and subsiarity, as well as concerns about the poor impact assessment. However, they have also begun to consider and prepare for discussions on the technical detail.
  • Whilst they won’t object to the principle of good governance and transparency, the proportionality of the proposals will be challenged. The NAPF calculated that the proposals would have a £328 million one-off cost, and £7.5m per annum. The two countries where the majority of IORPs are based (UK and Netherlands) already have fairly high standards of governance and transparency.
  • The current government does not favour regulation, and a proposal of 80 Articles (as opposed to the 30 Articles in the original Directive) is clearly unwelcome.
  • There is disagreement at EU level as to what IORPs are. The UK argues that these are not consumer products as people don’t choose them, and any rules should reflect this reality. In the Netherlands IORPs are large social institutions with a social aim, not profit-making.
  • One of the side-effects of auto-enrolment will be the increase in numbers of small pots, and the Pension Benefit Statement is unlikely to be useful for lots of small pot members (or the schemes). The UK’s 1995 Pensions Act had introduced a similar standardised pension benefit statement, but then rolled back the requirements as it was found to be too rigid and prescriptive.

In 2012, EIOPA provided advice to the European Commission on the review of the IORP Directive, so it is important to understand EIOPA’s role:

  • TpR (Stephen Soper or Nigel Peaple) sits on the Board of Supervisors - the ultimate decision-making body at EIOPA. Votes are usually based on a simple majority, which means that UK representatives need “friends” around the table before any vote takes place.
  • Other relevant committees include the Financial Stability committee, the Consumer Protection and Financial Innovation Committee (FCA seat), Occupational Pensions Committee (TpR seat) and a Peer Review committee (regulators sharing best practice within EIOPA)

The main differences between EIOPA’s advice to the Commission and the final text of the proposal include:

  • Single depositary requirement for DC IORPs. This is not very common for IORPs, and EIOPA’s original advice to the European Commission included a carve-out for trustees. ABI members have also raised this as a concern.
  • A principles-based approach for the Pension Benefit Statement, with minimum harmonisation of the content, and no template or common standardisation of format. EIOPA had also distinguished between DB & DC schemes, suggesting that DC schemes should provide information in a form similar to the PRIIPs KID, whilst for DB schemes, further work would need to be done to know how best to communicate to members.
  • EIOPA had not suggested any change to the definition of “sponsoring undertaking” – a concern raised also raised by ABI members
  • EIOPA’s advice recognised that IORPs are very different to insurance products, and that “consistency” does not mean having the same rules

EIOPA next steps:

  • Sept 2014: EIOPA will publish a consultation on the Holistic Balance Sheet, covering 5 key areas (deadline for response likely to be Dec 2014),
  • Spring 2015:  pension stress test and a QIS to be conducted
  • Autumn 2015: EIOPA to deliver advice to the European Commission

The ABI will continue to closely monitor the developments of this proposal at a political level. On the technical content of the proposal, we continue to liaise with the National Association of Pension Funds who are developing detailed comments, and is also collecting views from insurance firms with mastertrusts.


Last updated 01/07/2016