So what does this heady regulatory cocktail mean in practical terms?
The first and most direct consequence of Brussels’ concern about the adequacy of the regulatory framework for European pensions takes the form of a consultative document, the Green Paper towards adequate, sustainable and safe European pensions systems, which was published in July 2010. The deadline for responses to the Green Paper is 15 November 2010. The Green Paper looks at broad demographic and fiscal problems across the EU and seeks to test the adequacy of the IORP Directive in particular against that background. In fact, a review of how the IORP Directive had been implemented across member states was carried out only two years ago, but that focussed largely on national differences in solvency rules, not on the wider picture.
The reasons for the current review of the IORP Directive are many, ranging from increased recognition of longevity trends, the enlargement of the EU itself to 27 member states (from 15 in 2003) to the shift to defined contribution across the continent. All of these factors make the case that the IORP Directive is in some senses out of date already. It is also not surprising that the Green Paper addresses in particular whether the pay-as-you-go systems, which all member states have in some form or another, are sustainable to provide Europe’s citizens with adequate retirement income.
The consultation asks searching questions about retirement ages across the EU. While it does not go so far as proposing a universal retirement age – that would of course raise age discrimination problems – the Green Paper recognises that higher effective retirement ages are inevitable and asks how to achieve that. Strike action in France and Greece is presumably not an appropriate response…
Of most immediate application to UK funded schemes are renewed questions on solvency rules, accounting standards, continued barriers to transfers, differential tax treatment between member states and the whole issue of common prudential supervision for pension providers.
Under the Solvency II Framework Directive (which is concerned primarily with insurance supervision), a new European regulator has been established to cover both insurers and pension funds: the European Insurance and Occupational Pensions Authority (‘EIOPA’). Based in Frankfurt, it already employs 90 people. EIOPA has the power to draft binding technical standards which may be adopted by the European Commission. It is this body which would therefore be tasked with drafting any changes to the IORP Directive. EIOPA is required to consult with groups representing a prescribed number of 30 stakeholders for each of the pension and insurance industries. Since those 30 industry representatives are drawn from across the whole of the EU, the UK’s voice in EIOPA is one which is unlikely to predominate.