The European Commission has launched a review of its 'IORP Directive' covering pension funds, prompting a fresh wave of criticism by stakeholders who argue the framework makes a poor distinction between insurance and pension funds.
EU internal market and services commissioner Michel Barnier opened a public hearing on Thursday to consider how elements of the Solvency II directive for insurance companies can be carried over to the IORP Directive.
Speaking at the hearing will be Dörte Höppner, secretary general of the European Private Equity and Venture Capital association. No other asset class will be represented at the hearing, according to EVCA, who said it was a reflection of the industry’s strong relationship with pension funds.
Applying Solvency II to pension schemes would “severely jeopardise” the benefits private equity offers pensions, Höppner said in a statement alongside a consortium of stakeholders including The European Fund and Asset Management Association, the European Federation for Retirement Provision and the European Trade Union Confederation.
“We believe that it is dangerous to apply legislation made for insurance companies to IORPs”, the consortium said in a joint statement. Risk capital rules should acknowledge pension schemes are “fundamentally different from insurance products due to their long-term liabilities, the absence of competition between pension schemes, their generally not-for-profit nature, and because mechanisms exist to adjust contributions, indexation or benefits over time”, the statement said.
In a past consultation response, the EVCA argued the proposed reforms favour liquidity over capital at risk, creating a disadvantage for long-term held private equity assets, in effect harming pensions’ ability to meet liabilities as they fall due.
EU regulators will hold an impact study on the pensions framework this Spring, before the Commission publishes its expected proposal for a revised IORP Directive by the end of the year.
EVCA's Dörte Höppner has released a statement following the public hearing:
“We are pleased that the Commission does not intend to “copy and paste” Solvency II, designed for insurance firms. We hope that we can now have a sensible, political debate on how best to provide safe, sustainable and adequate pensions, while delivering economic growth. It is clear that using parts of Solvency II as a technical starting point to review pension fund regulation is out of kilter with many of the admirable ambitions outlined today by Commissioner Barnier including increasing economic growth and promoting long-term investment.”