Last-minute changes to IORP II Directive spark confusion
A European Commission source confirmed to IPE there would be “no changes for cross-border funds” in the new text, maintaining the funding requirements put in place by the first IORP Directive.“[The] status quo remains,” the source said. “That means cross-border pension funds need to be fully funded at all times, whereas national pension funds don’t have to be.”The source said the reason behind the Commission’s volte-face was twofold.“The revision of IORP is not about funding, so it makes no sense to deal just with one element of funding,” the source said. “And although we are not asking pension funds to increase their funding at this stage, we don’t think it makes sense either to encourage them to weaken existing funding requirements.“[This is] not in line with the general movement to improve prudential soundness.”The eleventh-hour reversal is certain to come as a shock to the industry, which had broadly welcomed the leaked draft’s position specifically on cross-border funding.Mark Dowsey, senior consultant at Towers Watson, said: “If the rumour that the fully funded requirement is not going to be removed is correct, it is very, very disappointing.“It is just two years ago that Michel Barnier, [EU commissioner for the internal market and services], stated in a public hearing in Brussels that the pre-eminent reason for the Commission revising the Directive was to ‘contribute to growth and employment and make better use of the Single Market’.“He stated that, to do so, the Commission wanted to ‘facilitate economies of scale’. The full-funding requirement is a major – if not the major – block on achieving the consolidation necessary to achieve that scale.”But Jerry Moriarty, chief executive and head of policy at the Irish Association of Pension Funds, was more phlegmatic, describing the policy reversal as “business as usual”.“The effect of the full-funding requirement has been to greatly reduce the number of Irish cross-border funds, and it is hard to see how DB schemes can operate on a cross-border basis,” he said.“It is a strange decision, as the purported aim of IORP II is to encourage more cross-border schemes.“As individual member states don’t require full-funding at all times and have provisions in place to allow recovery plans, it is hard to understand why that couldn’t apply on a cross-border basis.”The finalised Directive is expected to be published on Thursday, and will include provisions for governance, transparency and long-term investing. There has been confusion in Brussels after what looks like a last-minute lobbying intervention by the insurance industry to amend a key provision in the IORP II Directive regulating pension funds.An EU source has confirmed that cross-border pension funds will need to be fully funded after all.This represents a departure from several widely circulated drafts of the IORP II text, seen by IPE, which suggested cross-border schemes would not be required to be fully funded.One member of the EIOPA occupational pensions stakeholder group expressed anger about what has been interpreted as undue influence by insurers.