Dismissing the idea that he had ever said, or implied, that "pension funds would be subject to Solvency II rules", EU Commissioner Michel Barnier, speaking at the Commission's open hearing on the review of the Institutions for Occupational Retirement Provision (IORP) directive in Brussels yesterday (1 March), also strongly rejected claims that, "the revision of the directive will cost the European businesses 800 billion Euros or more" as well as claims that, "an extension of the Solvency II Directive to cover pension funds is planned and would abolish defined-benefit occupational pension schemes".
In response, the Groupe Consultatif points out that the referred high amounts must be based on the assumption that all pensions are fully guaranteed, which in practice very often is not the case; pension funds grant "soft" or "softer" guarantees as opposed to insurance products which generally offer "hard guarantees". This point was further elaborated, in the Group Consultatif's speech delivered by the Chairman of the Pensions Committee Falco Valkenburg at the hearing when he said that, "the valuation of the pension liabilities should allow for this- one of the ways would be to use higher discount rate that would appropriately reflect the softness of the contract".
"We should keep reminding ourselves that pensions are an agreement between social partners. Requiring higher capital requirements would improve the quality of the pension contract. We would suggest leaving this to social partners to decide, as pensions are just one element of a larger remuneration package".
Furthermore, speaking of the holistic balance sheet, he made it clear that the main objective was to provide better insight into how pensions are safeguarded and what risks are involved, which in turn would lead to better risk management and better information to beneficiaries. On the other hand the Groupe COnsultatif's support for the holistic balance sheet should not be used as an automatic trigger for driving capital allocation decisions, and neither be a technical tool, but rather work as a tool for communication and for management. From a management point of view it would for example demonstrate the developments of the components of the liabilities; and from a communication point of view it would be useful for communication with the regulator/ supervisor as well as potentially to other stakeholders.
The Groupe Consultatif also suggests that the Quantitative Impact Study should assess when the holistic balance sheet is in balance given the current financial position of IORPs, since this will reflect the implicit risk acceptance by social partners. The Groupe Consultatif wants to quantify and feed this information back to the social partners, and suggest that they reflect on the outcome of these facts and further consider the intended level of certainty of the pension promise.
Please see www.gcactuaries.org under Groupe News and Press Releases for more information on the Groupe's formal response to EIOPA and previous press release on this subject
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