EIOPA recently delivered its advice to the European Commission on how the existing IORP Directive could be amended to make occupational pensions’ regulation more consistent throughout EU member states and to the greatest extent possible, aligned with Solvency II (the regulatory framework for insurance). Such amendments may have profound effects on pension regulation around Europe.  Unsurprisingly, this topic has attracted a lot of media attention.

In its advice, EIOPA advocates a “holistic balance sheet” approach to IORP funding, where the assets and other security mechanisms available to an IORP are compared to its liabilities and potential risk-capital requirements.  Disclosure and governance requirements are likely to increase, in particular with requirements to carry out an “Own Risk and Solvency Assessment” and for IORP managers to be “fit and proper”. Defined contribution arrangements will need to provide a “key information document” to help members make informed choices. However, more detail is needed to assess the proposals’ financial impact.

A quantitative impact study is to occur over the Summer of 2012 and an amended IORP Directive may be available for consultation by the end of 2012. The study is likely to test the effect of Solvency II consistent funding requirements and will focus in particular on whether a common level of security across member states is feasible. Separately, the EC has published a White Paper with its proposals for how safe and sustainable pensions can be provided throughout the EU: this includes the reform of the IORP Directive.

While a new IORP Directive may not become effective for a number of years, this topic should interest IORP managers and sponsors that are planning retirement benefit options for employees or managing down legacy commitments. 

Mercer is a leading global provider of investment services, and offers customized guidance at every stage of the investment decision, risk management and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 30 years, and we work with the fiduciaries of pension funds, foundations, endowments and other investors in some 35 countries. We assist with every aspect of institutional investing (and retail portfolios in some geographies), from strategy, structure and implementation to ongoing fiduciary management.