EUROPE - Changing security provisions for pension funds as part of a review of the IORP directive could have a "horrendous" economic and societal impact, the European Federation for Retirement Provision (EFRP) has warned.

Speaking as the organisation finalised its submissions to the European Insurance and Occupational Pensions Authority (EIOPA) review of the directive - due on 2 January - chairman Patrick Burke said that he welcomed some of the improvements suggested - such as changes to governance standards and commitment to better member communication - but cautioned of impact of other modifications.

Referencing the proposed introduction of solvency regulations for pension funds, Burke said: "We strongly urge a re-think on changing the rules for pension security which weaken the system as a whole.

"The reasons for the review of security provisions remain unclear and unconvincing and early signals suggest that the social and economic impact would be horrendous," he said, adding, "The rationale needs to be clarified and reconsidered before any proposal is made."

However, the chairman was positive about EIOPA taking into account the growth of defined contribution schemes and recognition that the vehicle would become increasingly important in future - saying that it was a "critical opportunity" to allow for a strengthened European framework.

He urged that any changes should not be done in haste and insisted on "rigorous" impact assessments being conducted before the new guidelines were implemented and before any changes to the pension security regime were considered.

"My greatest concern," Burke said, "is that the steps considered in the Call for Advice will dramatically impact upon pension sustainability and adequacy across Europe."

"To undertake this assessment after a framework has been proposed in response to the Commission's Call for Advice is to put the cart before the horse."

He insisted that any assessment take into consideration three areas - including addressing the impact of additional funding costs on growth in the national economies, as sponsoring companies could be forced to supply such capital. 

The EFRP also raised concerns about how the new directive would impact asset allocations and how an outflow of investments away from global equity markets would impact economies, as well as the systemic risk if all schemes were forced to herd investments in the same direction.

Burke's concerns echo those of the UK's Confederation of British Industry (CBI), previously predicting that some EU regulations could force companies to commit to higher deficit recovery payments, while others could limit pension funds' ability to invest in infrastructure at a time when the UK's Treasury was looking to attract £20bn (€24bn) in commitments from institutional sources.

The group, representing the interests of employers in Britain, had previously warned that the introduction of Solvency II would lead to a "massive" flight from equity.

Topics