The European Union has published proposals to update the rules for occupational pension funds in Europe.
The European Commission said that the intention of the intention of Institutions for Occupational Retirement Provision (IORP) II Directive is to improve governance and transparency, to promote cross-border activity and to further develop IORPs as key long-term investors.
Regarding long-term investment, the Commission said that the aims are to ensure that pension scheme members are properly protected against risks; and to fully reap the benefits of the single market for IORPs by removing obstacles to cross-border provision of services.
The Commission also hopes to reinforce the capacity of occupational pension funds to invest in financial assets with a long-term economic profile and thereby support the financing of growth in the real economy.
The directive needs to be approved by the EU Council and the European Parliament and is expected to come into force by 31 December 2016.
Towers Watson said it was "disappointed" that the requirement for cross-border pension plans to be fully-funded at all times has not been dropped.
Dave Roberts, Towers Watson senior consultant, said: "As well as casting doubt on the Commission's assertion that one of the main objectives for the directive is to fully reap the benefits of the single market for occupational pensions by removing obstacles to cross-border provision of services, this could create significant funding problems for some schemes in the event of Scotland voting in favour of independence from the rest of the UK."
Aon Hewitt's head of cross-border pensions consulting team Paul Bonser said: "It is disappointing that the fully funded requirement for cross-border pension funds remains in the directive. The European Commission has retained a key barrier to activity as cross-border pension funds continue to be treated more harshly than non-cross-border funds.
"It is effectively discrimination – which the European Commission is trying hard to erase in most other areas."
Bonser added that there were some silver linings as the directive contains news rules to ease the transfer of assets and liabilities between IORPs in different countries.
Aon Hewitt lead adviser and actuary Thierry Verkest said that Belgium and Luxembourg will remain the destinations of choice for cross-border funds due to the positive approach from countries' governments, strong local governance requirements, and pro-active supervisory involvement.
Verkest added: "Given it will be easier to transfer assets and liabilities to cross-border plans, we expect existing cross-border plans to grow, and for more multinationals to set up their own European-wide pension funds for both DB and DC.
Deloitte consulting partner Feargus Mitchell said that in light of the updated governance and disclosure requirements, trustees and employers will need to re-assess their current processes and approach to these areas.
Mitchell also said that employers will be relieved that the directive has not imposed new funding rules that would increase pension scheme deficits.
He said: "The most contentious element of the IORP Directive – new funding rules that would have significantly increased pension deficits – has been dropped from the draft directive.
"This aspect had generated considerable opposition across Europe and employers will be relieved that they will have more time to deal with existing pension deficits under current rules."
First published 27.03.2014
monique_simpson@wilmington.co.uk
