Benefits currently accruing in Europe’s pension schemes could end up being completely exempt from the proposed holistic balance sheet (HBS) if the European Insurance and Occupational Pensions Authority (EIOPA) wishes to avoid burdening funds with additional costs.

The supervisor’s recent discussion paper on the HBS says it may be appropriate to “consider the possibility of grandfathering”, so that the new guidelines do not affect accrued rights.

The paper adds that current pension “contracts”, which it says could cover benefits and contributions that are fixed for the whole term of the contract, could be exempt due to the cost burden associated from any new framework.

Aon Hewitt partner Colin Haines said a ‘grandfathering’ clause could offer defined benefit (DB) schemes a reprieve.

“Arguably, if the benefits are fixed under the rules, and the contributions don’t vary, this could be interpreted to include future benefits as well,” he said.

While the use of ‘contract’ to describe an agreement is not common in Haines’s native UK, the Dutch system uses the terminology, with social partners agreeing binding contribution rates for workers paying into individual schemes.

Haines argued that if funds would still be impacted by the HBS, it is right they continue to argue against its introduction.

“If not, then is it right for the industry to spend a lot of time, effort and money engaging on this?” he asked.

Haines, who heads up the consultancy’s Nordic retirement business, also welcomed the acknowledgement within EIOPA’s consultation that if funds could account for future asset return when discounting liabilities, it would encourage investment in long-term assets.

“Large employers I speak to across Europe say ‘Yes, we want to be encouraged to invest in long-term assets, and we want an economically efficient approach’,” he said.

He added that the ability to account for investment returns, rather than employing a risk-free rate, would have a lot of support.

“But it all comes down to, at the end of the day, what is EIOPA’s preferred option,” he said. 

While EIOPA had tabled six potential HBS approaches as part of the consultation, it was unclear which it preferred, how it would advise the European Commission or whether the College of Commissioners had its own preferred approach, he noted.

The current HBS consultation, which runs until next January, has previously been welcomed for its “pragmatic” approach.

Topics