EFRP views on supervision of private pensions

1
EFRP views on supervision of private pensions
Mr. Jaap MAASSEN Chairman EFRP Warsaw, 19
September 2006
2
Key messages

• EFRP is the only European industry representative
  focussing on supplementary private pensions
• Supervisors and IORPs share a common goal
  deliver secure and affordable pensions
• To develop and flourish, supplementary private
  pensions need a stable and supportive regulatory
  environment
• CEIOPS should embrace occupational pensions as
  part of its core mission

3
EFRP today
28 Member Associations 16 EU Member States
(EU-15 EL) PL HU 5 non-EU (CH, Guernsey,
HR, IS, NO) More new EU Member States are
expected to join

• 73 million EU citizens have workplace pensions
  through EFRP Members
• Total assets managed 3,3 trillion Euro
• EFRP represents 2nd pillar pension vehicles (
  linked to employment)

4
EFRP tomorrow ?

• EFRP is currently reviewing its structure and
  governance to reflect i.a. EU enlargement
• Pension reforms in the EU-10 have introduced
  mandatory private pensions (2nd pillar) and
  voluntary private pensions (3rd pillar)
• Mismatch with EU-15 pension provision and pillar
  approach
• EFRP wants to contribute to maximising the
  chances for success of enlargement process in the
  field of supplementary pensions

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EFRP guiding principles

• The EFRP stands for
• respect for diversity
• no pension system is inherently superior to
  another
• 25 different Member States
• 25 different pension systems
• at least 25 different cultures
• the sharing of common goals and objectives
• the provision of secure and affordable pensions
• focus on private pension provision

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Supervisors and EFRP a common goal

• Supervisors and IORPs share a common goal ensure
  the delivery of secure and affordable pensions
• Preamble of IOPS principles on private pension
  supervision
• main objectives of pension supervision
• to promote the stability, security and good
  governance of pension funds and plans
• to protect the interest of pension fund members
  and beneficiaries
• to promote a well functioning pension sector
• EFRP ? this implies affordability/efficiency
  criterion

7
Delivering secure and affordable pensions

• Promoting the development of private (funded)
  pension systems is high on the EU agenda
• Private pension providers can only deliver in a
  cost-efficient environment
• Policy makers should be aware that the law of
  diminishing returns also applies to regulation
  supervisory requirements
• To allow pension providers to deliver affordable
  and secure pensions supervisors have to
• find the balance between security and costs
  (short term ? long term security)
• accept that pensions are long term commitments
  which involve uncertainty and adds complexity

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Stable and supportive regulatory supervisory
environment (1)

• In the EU, IORP Directive is the foundation for
  further development of workplace pensions
• sets standards for supervisors across EU
• tasks the supervisors working through CEIOPS to
  actively cooperate to make the Directive work
• single license
• common understanding
• establishes the home country supervision
• liberalises investment practice
• EU foundation should be in place since 23
  September 2003

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Stable and supportive regulatory supervisory
environment (2)

• By 23 September 2005, Member States should have
  notified all their national laws implementing the
  IORP Directive
• 20 MS notified
• 2 MS partially notified (FR, UK)
• 3 MS not-notified (BE, CY, IT)
• But now the EU Commission is checking quality of
  the national laws - has the IORP Dir been
  transposed correctly?

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Supervisory cooperation EU (1)

• At EU level, Lamfalussy system for financial
  services coordinates MS regulatory supervisory
  activity
• Aim
• create and enforce a consistent EU-wide financial
  services framework
• be able to adapt framework quickly

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Supervisory cooperation EU (2)

• Lamfalussy for insurance and occupational
  pensions
• EU Parliament Council as main legislators
  (Level 1)
• EIOPC forum of national law/rule makers (Level
  2)
• CEIOPS forum of national supervisors (Level
  3)
• Enforcers e.g. EU Commission (Level 4)

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Supervisory cooperation EU (3)

• Lamfalussy IORP Directive mean CEIOPS must
• ensure information exchange between supervisors
• develop common understanding of IORP Directive
• display mutual trust in work and procedures of
  colleagues cross border
• Commissioner Ch. Mc CREEVY on 15 sept. in Warsaw
• pro-active supervisory cooperation in CEIOPS is
  the key to success of the new EU regulatory
  framework for IORPs

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Supervisory forum IOPS

• At international level IOPS (as from July 2004)
• IOPS Principles of Private Pension Supervision
• broadly in line with current supervisory
  practices in the EU
• neglect implications of certain governance
  structures of pension funds (paritarian,
  corporate sponsors, non profit)
• principles should be universally applicable
  despite diversity in the private pension systems

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IOPS Principles (1)

• P1 Objectives
• clear and specific mandate for supervisors is
  missing in several EU MS
• P2 Independence
• essential to be independent of political
  authorities / pressure (political opinions
  mostly based on short term considerations)
• P3 Adequate resources
• couldnt agree more
• P4 Adequate powers
• in favour of strong powers but used with
  discretion and proportion

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IOPS Principles (2)

• P5 Risk orientation
• not yet common practice to allocate resources
  with targets
• pro-active role may not end up with inadequate
  reporting standards
• P6 Proportionality and consistency
• proportionality to the risk being mitigated good
  approach but not adopted in practice
• P7 Consultation and cooperation
• supervisors should be allowed to consult ?
  outdated
• open consultation process improves quality of
  legislation
• cross-border supervisory cooperation an
  obligation under the IORP Dir.
• P8 Confidentiality
• obvious

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IOPS Principles (3)

• P9 Transparency
• audit and reporting requirements for supervisors
  not yet common practice ? improvement but still
  way to go
• very important
• industry and supervisors understand each other
• soft law has hard consequences
• improves efficiency (no long term trade off
  between transparency and efficiency)
• supervisory rules and procedures should be
  explained and published ? insight in how
  decisions are taken
• P10 Governance code
• weakest point of principles
• not yet the standard in the EU

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Extension of Solvency II to IORPs ?

• April 2006 EIOPC postpones issue of Solvency II
  and IORPs to 2008
• Impact of IORP Directive on regulatory framework,
  providers and solvency-relevant factors still
  unknown
• Some distinctive features
• Possibility of increasing IORP contribution rate
• Role of the sponsor
• Long term investment horizon
• Compulsory participation
• Flexibility in benefit conditionality of
  indexation
• Changing the pension deal
• Differences between IORPs and life insurance mean
  IORPs will need a separate solvency review no
  cut and paste!

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Key messages

• EFRP is the only European industry representative
  focussing on supplementary private pensions
• Supervisors and IORPs share a common goal
  deliver secure and affordable pensions
• To develop and flourish, supplementary private
  pensions need a stable and supportive regulatory
  environment
• CEIOPS should embrace occupational pensions as
  part of its core mission

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Contact

• EFRP
• Koningsstraat 97 rue Royale
• 1000 Brussels
• Belgium
• Tel. [phone]
• Fax [phone]
• efrp_at_efrp.org
• www.efrp.org