Despair and Disappointment at Europe’s New Pension Rules

Experts think Europe has missed the target again with this week’s update to the IORP Directive.

(March 28, 2014) — Pension advisors have expressed their dismay at the latest update to the Europe-wide directive on retirement schemes.

Yesterday, the European Commission released the latest version of its Institutions for Occupational Retirement Provision (IORP) directive—much of its detail was immediately picked apart by experts.

“Whilst the National Association of Pension Funds (NAPF) strongly supports initiatives to ensure that pension funds are well run, this new directive simply adds further costs and administrative burdens without delivering practical benefits for members,” said Joanne Segars, chief executive of the NAPF.

These costs come in the form of a one-off implementation fee of €22 per member, which the NAPF estimated to hit the UK’s pension funds alone by £328 million. An additional annual cost of up to €0.80 per defined benefit (DB) member and €3 per defined contribution (DC) member angered others, who cited recent moves by the UK government to make DC pensions more cost effective and attractive to savers.

Dave Roberts, senior consultant at Towers Watson, was disappointed that after much “leaking” of documents suggesting the contrary, cross-border pensions would still be expected to be fully-funded at all times.

Roberts said the move went against the European Commission’s own assessment that it would “hamper IORP’s willingness to engage in cross-border activities”.

A call for better member communication was widely applauded, but Jane Beverly at Punter Southall saw irony in the regulation document.

“There is much to admire… but the proposal as it stands is fundamentally flawed,” said Beverly. “It requires the statement to fit into two pages of A4 in characters of an ‘easily readable size’ and then proceeds to take six pages of A4 to describe what should go into it! It also includes a requirement for graphical representations of the risk and return profile of each investment option.”

While all sides agreed that the basis of the directive—putting effective systems of governance and risk management at the heart of a pension—it attracted more criticism than praise.

The most damning reproach came for the impact assessment that was published a few hours after the original document. This document formed the basis for the establishment of the new rulings.

Towers Watson’s Roberts said that the assessment had collected responses from just three UK pension funds—out of a possible several thousand—was deplorable and made the conclusions “meaningless”.

“The impact assessment paints a picture of regimes not fit for purpose. The reality is that the impact assessment is not fit for purpose,” he said.

The full text of the European Commission’s report can be found here.

Related content: Why Bureaucracy Has Killed Solvency II for Pensions & Problems with Rules & Regulations