The European Insurance Occupational Pensions Authority (EIOPA) has today published its response to the European Commission’s call for advice on the review of the IORP Directive.

In a release outlining its advice, EIOPA said the “holistic balance sheet” approach it advocates will acknowledge the existing diversity of occupational pension systems in the EU Member States, while capturing all these systems into a single balance sheet.

The authority stresses the importance of a quantitative impact study (QIS), arguing this is crucial to “further explore the possible impact on the financial requirements for pension funds that the holistic balance sheet” and the various policy options will have.

EIOPA is currently preparing for a QIS exercise and aims to publish results in the second half of 2012.

The advice also contains proposals to enhance qualitative requirements in such areas as governance and risk-management, which have been modelled on the Solvency II capital adequacy regime for insurance firms.

EIOPA calls for the strengthening of fit and proper criteria and for a proportionate implementation of robust internal and external controls and “sound risk management frameworks”.

In addition, the advice addresses information provision and member protection, particularly in defined contribution (DC) schemes. EIOPA argues information needs to be relevant, correct, understandable and not misleading.

To achieve this, the authority calls for the introduction of a key information document for all DC schemes, which it said would allow members to have confidence in the scheme regardless of where it is located in the EU.

Chair of the association Gabriel Bernardino said some 60 million people rely on DC schemes at present, and he expects this number to grow in the years to come.

“However, this is not the end of the process of developing a European framework for occupational pensions, but merely the beginning”, he added. “In particular, we have to ascertain ourselves via the QIS that the proposed approach stimulates affordable yet secure occupational pension provision in Europe”.

The UK’s National Association of Pension Funds (NAPF) expressed disappointment that EIOPA had stuck with the Solvency II-type regime in its advice. Chief executive Joanne Segars said the authority’s own advice “acknowledges the damage that would be done to European pensions, jobs and the wider economy”.

“Solvency II would pile extra pressure on firms that are struggling to survive during these difficult times. The NAPF’s initial assessment shows that these rules could cost UK pension funds at least an extra £300bn. Faced with extra funding demands, many companies would have no choice other than to close their final salary pension schemes.”

However, the NAPF was pleased that EIOPA has heeded its advice on the importance of the forthcoming QIS in assessing the impact of the proposals on pensions and the wider economy.

“The UK already has a strong system in place to protect its final salary pensions. It does not need additional protection from Europe. The European Commission and EIOPA should instead focus on where they can add real value. Their plans to improve defined contribution pensions and member communication are welcome, and we encourage the commission to focus its attention on these areas.”

The European Private Equity and Venture Capital Association (EVCA) welcomed proposals to strengthen retirement provision in Europe, though warned of the potential damage a Solvency II-type regime could cause.

The EVCA said Solvency II rules would redirect investment towards lower return, fixed income assets and away from growth asset classes, because insurers’ capital requirements must be calibrated to the value at risk, marked to market, over a 12 month period.

Imposing Solvency II requirements on pensions would therefore impact occupational pension schemes abilities to meet their long-term liabilities and invest, through private equity and venture capital, in SMEs, innovation and growth.

Furthermore, the EVCA said the proposals have the potential to vastly increase the cost of pension plans for millions of Europe’s employees, reduce their retirement incomes and undermine investment at a crucial time for Europe.

EVCA chair Klaus Bjorn Rhune said Europe’s ageing population and low-growth economy have created a “pensions time-bomb” in Europe.

“The EU is right to focus on this issue but making it too costly to invest in long-term growth through say, private equity, venture capital or infrastructure is clearly not the way to defuse this bomb. In fact, by redirecting investment away from growing companies, it could make a bad situation much worse. A rigorous impact assessment is essential.”

A European Commission hearing on the issue will be held at the beginning of March. EIOPA’s advice can be accessed here.

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