EUROPE – The European Commission is considering watering down the first pillar of the revised IORP Directive focusing on capital requirements, according to industry experts.

Philip Neyt, managing director at the pension fund for Belgacom, told IPE that his discussions with members of the European Commission during the European Insurance and Occupational Pensions Authority (EIOPA) conference in Frankfurt last month suggested that Brussels was thinking to change its implementation plan for the revised IORP Directive.

“Members of the European Commission have acknowledged that transposing Solvency II measures agreed in 2008-09, in the midst of the financial crisis, into the current economic environment could have major impact on Europe,” he said.

“The message I got from regulators made me think that they are currently working on serious proposals to water down the first pillar of the IORP Directive.”

Charles Vaquier, chief executive at French pension fund UMR, echoed Neyt’s comments, arguing that Brussels would not proceed on the first pillar as planned.

“Considering the delay in implementing Solvency II for the insurers and the comments made my Karel van Hulle at the EIOPA conference, everything makes us believe that Brussels will not be able to introduce the first pillar of the directive,” he said.

In Frankfurt, Van Hulle confirmed that Brussels would not impose Solvency II capital requirements on pension funds’ past rights but only on accruing rights.

Industry figures had argued that imposing capital requirements on both accrued and accruing rights would have had a major impact on European occupational pensions.

“This means that pension funds’ existing book will not be covered by Solvency capital charges,” Vaquier said.

According to him, Brussels will instead aim to introduce the second and third pillars of the directive, which focus on qualitative requirements – comprising rules on governance and the supervisory review process – and transparency requirements – comprising rules on disclosure, both to regulators and to members.

“However,” Vaquier added, “even if Brussels does not proceed with the first pillar, pension funds across Europe must realise that the second and third pillars of the IORP Directive will still represent a massive cost burden.”

He said that, in the case of UMR, the French scheme would need to employ “at least” two more people to comply with the new governance requirements [pillar two].

And Neyt said European pension funds would face similar costs when the third pillar of the directive was introduced, as this would “inevitably” push European schemes to review their IT systems to comply with the new reporting rules.  

But Chris Verhaegen, chair of EIOPA’s Occupational Pensions Stakeholder Group, was sceptical about the timetable, not to mention the plausibility of the Commission dropping the first pillar.

“Considering the timetable set by the Commission, which aims to introduce the revised IORP Directive in June 2013, the decision to water down the first pillar would have to be taken before the end of this year, as Brussels would need to translate political decisions into texts,” she said.

“Additionally, if the Commission decided to drop the first pillar, it would need to enter into talks with both the industry and the European Council.”

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