|AEIP supports a comprehensive occupational pension security scheme|
Due to the specific nature of pensions such as, their social dimension and long-term horizon, some of the criteria outlined in the Solvency II Directive are not appropriate for pension funds. This is especially true when considering the specific nature of the pension schemes represented at AEIP. Within the members of AEIP there are pension schemes which are non-profit, non-competitive, mandatory, sectoral and above all, paritarian in nature. Due to these characteristics, AEIP understands that its members need different regulations then insurance companies. This understanding has led to the AEIP common position outlining a suitable occupational pension security scheme.
Using the pillar terminology as outlined by EIOPA, AEIP has responded to the three main themes as outlined in the Solvency II directive: Pillar I - Quantitative Requirements, Pillar II – Qualitative Requirements and Pillar III – Reporting Requirements. The AEIP position paper explains that Pillars II and III are, to a certain extent, acceptable although minimal changes will be necessary. On the other hand, Pillar I is where the real problem lies for the members of AEIP.
In the framework of Pillar I, AEIP disagrees with the quantitative (capital) requirements. However, if it is absolutely necessary to have legal framework then AEIP stresses the point that all possibilities to mitigate risk must be taken into account. This includes paritarian management, national guarantee funds, solidarity, sponsor’s guarantee, and increase of contributions or the adjustment of liabilities. It should also be clear that pension funds do not have correlated risks in the same way as insurance companies. With regards to specific technical provisions AEIP believes that technical provisions for funds must only be calculated on accrued rights. The buffers should then only cover the pension promise that is legally binding. Furthermore, AEIP agrees with one year horizon calculations and a confidence level of 97.5%, but the recovery period should be linked to the long-term nature of pension liabilities. As for what discount rate should be used, the members are waiting for the discussions on SII to finish before taking position. However, they do make it clear that if there is a standard formula for calculations based on the above factors, there should always be the possibility to use internal models.
As for pillar II, the members of AEIP agree with almost everything as outlined in Solvency II Directive. This includes the articles dealing with own risk solvency assessment, internal control, internal audit, actuarial functions, outsourcing rules, and internal models. However, AEIP would like to remind the Commission that proportionality, which considers small funds and large funds, must always be taken into account. Moreover, only material risks should be taken into account. The two other disputable ideas within Pillar II are the risk assessment requirements and the definitions of ‘fit’ and ‘proper’ when referring to pension fund governance. As mentioned in the above paragraph, buffer funds should be replenished over a long period of time considering the long-term nature of pension funds. In addition, all risks for pensions are not correlated and thus, buffer funds only have the responsibility to cover one risk happening at one time. As for the terminology used to define ‘fit’ and ‘proper’ AEIP feels that the definition found in the Solvency II Directive needs to be more encompassing considering that professional qualification, knowledge and experience may be acquired by representing the members of pension schemes; fitness of non-executive board members or members of a supervisory board should be easier to gain than fitness of executive board members; and the “fit” rule (knowledge and experience) should be applied at the level of the board, which should have the necessary qualification, knowledge and experience as a whole.
Lastly, for pillar III, AEIP agrees with the periodic reporting and with providing detailed supervisory disclosure reports. However, AEIP does not agree with providing detailed reports to the general public, especially when it is the case that the fund is not competing with any other fund. For the members of AEIP, providing information to the fund members is sufficient. In addition, AEIP also feels that aligning reporting standards to the IFRS is irrelevant.
In short, AEIP hopes that the Commission will consider the points outlined in its seven page position and always keep in mind the specific nature of pension funds. This includes their various sizes, management models, and the probability of material risk which could occur to them.
Please click here to download the AEIP common position,"Towards an appropriate occupational pension security system [Solvency]"
For more information please contact:
Financial Affairs Advisor
AEIP - The European Association of Paritarian Institutions
Rue Montoyer 24
B- 1000 Brussels
+32 2 233 54 22