EU and workplace pensions: what now, where next?

One of these stems from the process of revising the existing 2003 IORP directive and the other is the European Insurance and Occupational Pensions Authority’s development of IORP solvency proposals, centred around the concept of a ‘holistic balance sheet'.

Unsurprisingly, the original IORP directive focused on establishing a framework for a world where pan-European companies could have a single scheme for subsidiaries across the EU, and pension funds could manage schemes for companies established in another EU state.

A revision of the current directive is still working its way through the EU’s legislative process and is intended to improve the governance and transparency of IORPs and to further facilitate cross-border activity.

It is quite a significant reworking of the original, with new proposals ranging from enhanced member information to risk management.

Significantly however, it does not now seek to incorporate a Solvency II-style approach to funding schemes.

This is a matter that EIOPA has taken forward separately, with the initiative still pretty much in its infancy and the ultimate outcome very much less certain.

It is quite a significant reworking of the original... Significantly, however, it does not now seek to incorporate a Solvency II-style approach to funding schemes

Holistic balance sheet

So where have we got to with the HBS?

EU Commissioner at the time, Michel Barnier, applied some brakes to the process following a quantitative impact study in 2012 and called for more work to be done on the HBS concept.

EIOPA’s second consultation on the subject has only recently finished and now we face the prospect of a second QIS.

The challenge for EIOPA is to reach any kind of solution that works meaningfully across the EU and that does not end up damaging, rather than enhancing existing systems of pension provision.

If the proposals are too detailed, they are likely to be complex and unwieldy to implement. Too simplified, however, and they risk misalignment with established and effective market approaches within member states.

It is difficult to envisage anything being implemented successfully without individual states having some degree of flexibility and discretion over how to make it happen.

It appears EIOPA’s near-term sights, at least, are firmly set on more data-gathering and stress-testing, so the answers to many if not all of the hard questions may have to wait a while yet.

Tony Hobman is chairman of the advisory board at Lincoln Pensions