aba Assessment of the Proposal for a Directive on the activities and supervision of institutions for occupational retirement provision

Transcription

1 aba Assessment of the Proposal for a Directive on the activities and supervision of institutions for occupational retirement provision Last updated: 09 February 2015 The aba - Arbeitsgemeinschaft für betriebliche Altersversorgung e.v. - is the German association representing all matters concerning occupational pensions in the private and public sector. The aba has 1,200 members including corporate sponsors of pension schemes, IORPs, actuaries and consulting firms, employer associations and unions, as well as insurance companies, banks and investment managers. According to our statutes, our mission is to represent existing schemes as well as to expand coverage of occupational pensions independent of vehicle.

2 Summary IORPs need a lasting Directive and no solvency requirements following the life insurance Directive Solvency II. The IORP II Directive needs to clarify that the solvency requirements for the insurance industry do not fit IORPs neither today, nor in the future. Recitals 29 and 57 should therefore be deleted and not be replaced. The work regarding a Holistic Balance Sheet (HBS) in essence an inadequate copy-and-paste from Solvency II with a failed attempt to take the specifics of occupational pensions into account should be halted. 2. The main objective of IORP supervision needs to fit occupational pensions not the Solvency II Directive. It should therefore read: Taking into account national social and labour law, the IORP Directive supports the establishment and operation of IORPs, encourages their efficient management and administration, enhances their attractiveness for employees and employers and supports the protection of members and beneficiaries. 3. The IORP II Directive needs to acknowledge the character of IORPs and in particular the triangular relationship between the employee, the employer and the IORP. IORPs have a social function. The Directive needs to sufficiently acknowledge that they are rooted in national social and labour law. IORPs with a social purpose are not competing with financial institutions, in particular assurance undertakings, nor with other IORPs. 4. Occupational pensions differ hugely across the EU and the national social and labour law plays an important role for occupational pensions. Therefore, rather than delegated acts adopted by the European Commission, more flexibility is required for the Member States when transposing the Directive. Delegated Acts (Art. 30, 24 (3) and 54 IORP II proposal) lead to an inadequate one-sizefits-all approach. In addition, central questions having a lasting impact on the retirement provision of the majority of citizens in the most populated EU Member States should under no circumstances be decided through delegated acts leaving only very limited influence to the Council, the European Parliament and occupational pension stakeholders. 5. The main focus regarding governance and risk management requirements needs to be on a practical risk evaluation for pensions. The fundamental principle that the key functions in the IORP, consisting of risk management, audit and actuarial functions, need to be separated from those of the sponsor drives a wedge between the IORP and the sponsor. This requirement does not fit occupational pensions and will create huge inefficiencies. In many cases, principal-agent-problems are avoided by the very structure of IORPs. This should also be considered adequately in the area of remuneration policy. The Directive should leave more flexibility to the Member States when implementing the Directive. In particular for specifications around the risk evaluation it is important to bear in mind the national background and tailor any specifications to fit the national set up. This includes questions around the legal establishment of the pension promise, the complexity of the promise itself and its relations to other pension promises made by the same sponsor, type of financing, risks covered, risk-sharing between employee, IORP and employer, number of sponsoring employers and their relation with each other, financing and liability constellations, existence of and level of protection offered by pension protection schemes for IORPs or their sponsors. Under no circumstances should the delegated acts be used to prepare for or even introduce the Holistic Balance Sheet through the back door.

3 The proposed information requirements need to add value for all members at a reasonable extra cost. The current proposal closely follows the information requirements for investment products and focuses on consumer protection an approach which does not fit collectively organised occupational pensions. IORPs are not financial institutions, and their members and beneficiaries are not consumers. In addition it is difficult to capture the information relevant for the different systems adequately in a single form. Pension Benefit Statements should only include information which is relevant to the specific institution. To avoid unnecessary information and high costs, it should be the Member States who tailor the requirements so that they fit their existing systems. The IORP II Directive should therefore only set guidelines and principles. 7. The Impact Assessment which the Commission published alongside the IORP II proposal is not sufficiently reliable. From our perspective this is partly down to the Impact Assessment failing to satisfy the requirements set out in the Impact Assessment Guidelines of the European Commission. 8. Regarding the cross-border activity of IORPs, the IORP II proposal is a step in the right direction. However, it is unlikely that the Directive will significantly foster cross-border activity, particularly because the main barriers to cross-border activity go beyond the reach of a prudential directive. We would like to emphasise that a working system of transfers of pension schemes (as defined in Art. 6(b)) is a key condition for the efficiency of collective occupational pensions. A fragmentation of pension promises should therefore be avoided where possible. 9. IORPs should be able to continue to cover their risks (longevity, invalidity and survivor s pensions) using re-insurance, therefore an amendment of the Solvency II Directive is necessary. This could be achieved by an addition to Art. 76 of the proposed IORP II Directive. 10. The special character of occupational pensions needs also to be taken into account in future negotiations of the IORP II Directive. We propose an equal responsibility in the area of occupational pensions of DG MARKT and DG EMPL and, similarly, the European Parliament Committees ECON and EMPL. For further information please contact: Klaus Stiefermann (Secretary General / CEO of the aba) Tel.: klaus.stiefermann@aba-online.de Dr. Cornelia Schmid Tel.: cornelia.schmid@aba-online.de Verena Menne Tel.: verena.menne@aba-online.de

4 - 4 - aba position regarding the proposal for an IORP II Directive General Remarks The European Commission published the long-awaited proposal for an IORP II Directive on 27 March The proposed Directive contains 81 Articles and the competence to adopt three delegated acts (Art. 30, 24 (3) and 54). The proposal is part of the recast of the IORP Directive (Directive 2003/41 on the activities and supervision of institutions for occupational retirement provision).the legal basis will remain the same (now Art. 53, 62 and 114 (1) Treaty on the Functioning of the European Union), with the objective of fostering a single European market for occupational pensions. In Germany Pensionskassen and Pensionsfonds fall under the scope of the IORP Directive, which so far has been limited to setting minimum prudential standards for IORPs in the EU. The focus of the proposal includes new requirements in the area of governance and risk management as well as obligations for the IORPs to provide detailed information to members and beneficiaries. The aba shares the general objective of the proposal to strengthen occupational pensions across the EU (see Chapter 1.1 IORP II Directive proposal). However, we doubt that the current proposal will actually contribute to broaden coverage and increase contributions. Rather, it looks like the opposite might happen. We would particularly like to draw attention to the following points: 1. IORPs need a lasting Directive and no solvency requirements following the life insurance Directive Solvency II. Since employers and employees commit themselves for decades under an occupational pension, reliable labour and tax law and particularly for IORPs reliable prudential regulation is necessary. The discussion as to whether to impose Solvency II style capital requirements on IORPs has been going on for several years now has led to uncertainty for many employers with a number of them postponing plans they had for their IORPs. As a consequence, the introduction of new IORPs or the extension of existing ones is on hold for years. The IORP II Directive needs to put an end to this situation. IORP II needs to clarify that the solvency requirements for the insurance industry do not fit IORPs neither today, nor in the future. The aba calls for a bespoke, adequate and affordable prudential framework, which takes into account the specific characteristics of IORPs. The IORP II Directive proposal contains no new solvency requirements based on the Holistic Balance Sheet approach (HBS), which in essence is an inadequate copy-and-paste from Solvency II with a failed attempt to take the specifics of occupational pensions into account. While we welcome this decision, we would like to point out: - Art. 75 stipulates a general requirement for the European Commission to evaluate the IORP II Directive four years after coming into force. Recital 57 goes into more detail and explicitly refers to a review of the IORP II Directive regarding the calculation of the technical provisions, the funding of technical 1 If not indicated otherwise, the citations of articles in this document refer to the proposed text.

5 - 5 - provisions, regulatory own funds, solvency margins, investment rules and any other aspect relating to the financial solvency situation of the institution. - The Recital relating to Art. 17 of the IORP I Directive ( Regulatory own funds ), which stipulates that IORPs who themselves bear risks should hold at least the same additional own funds as life-assurance companies, has been kept and is now Recital 29 in the IORP II Directive proposal. Moreover, the aba observes with growing concern the target-oriented continuation of EIOPA s work on the HBS. Currently five subgroups of EIOPA s Occupational Pensions Committee (OPC) are currently working on the issue. For the last quarter of 2014 an extensive EIOPA consultation is expected. Recitals 29 and 57 should be deleted and not be replaced. 2. The main objective of IORP supervision needs to fit occupational pensions not the Solvency II Directive. Since the requirements in a Directive are developed to fit the objectives stated in the Directive, the definition of the objective is of utmost importance. Getting the objective right is the first prerequisite for getting the requirements in the Directive right. The main objectives of supervision defined in Art. 59 of the IORP II proposal 2 and Art. 27 of the Solvency II Directive 3 are almost identical. Both articles define the protection of members and beneficiaries or, respectively, the protection of policy-holders and beneficiaries as the main objective of supervision. The proposed sole focus on the protection of members and beneficiaries does not fit occupational pensions, which are organised jointly and voluntarily by employers and social partners and where those involved share the same interests. Members and beneficiaries of occupational pensions are first and foremost protected through national social and labour law. To take into account the characteristics of occupational pensions and the difference to life insurance, the main objective of the supervision of IORPs in Art. 59 should be defined as follows: Taking into account national social and labour law, the IORP Directive supports the establishment and operation of IORPs, encourages their efficient management and administration, enhances their attractiveness for employees and employers and supports the protection of members and beneficiaries. Recital 59 should be amended accordingly. 3. The IORP II Directive needs to acknowledge the character of IORPs and in particular the triangular relationship between the employee, the employer and the IORP. The proposed Directive repeatedly uses the term occupational pensions without defining it or differentiating it from personal pensions. The defini- 2 Article 59: The main objective of prudential supervision is the protection of members and beneficiaries. 3 Article 27: Member States shall ensure that the supervisory authorities are provided with the necessary means, and have the relevant expertise, capacity, and mandate to achieve the main objective of supervision, namely the protection of policy holders and beneficiaries.

6 - 6 - tion of the sponsoring undertaking (Art. 6 (c)) does not refer to the employment relationship. Only the clear link to an employment relationship will consequently ensure that the triangular relationship between employer, employee and IORP is adequately taken into account. The IORP II proposal kept the relatively unspecific definition of the term Institution for Occupational Retirement Provision (Art. 6 (a)) from IORP I. The wrong classification of IORPs as financial institutions (Recital 20) is also unchanged. It is therefore not surprising, that part of the proposed requirements do not fit IORPs where employers /companies or social partners organise funded occupational pensions as a social benefit. - IORPs have a social function. IORPs are pension institutions with a social purpose which bear a heavy responsibility for the provision of occupational retirement benefits and have become an important supplement to the public pensions from the first pillar. This has also been emphasised by Commissioner Laszlo Andor. Their social function and the triangular relationship between the employer, the employee and the IORP must be adequately acknowledged and supported as the guiding principle of the Directive. In general, they are not profit-seeking for external stakeholders such as shareholders and usually have social partners / representatives of their members involved in decision making processes. Occupational pensions are governed primarily by social and labour law, which provides a high level of protection to the members and beneficiaries. - The IORP Directive needs to sufficiently acknowledge that occupational pensions are rooted in national social and labour law. It is disappointing that the proposed text omits the crucial role of the employer-employee relationship and the essential character of social and labour law in governing this relationship. We therefore suggest including consistent reference to the employment relationship in the Recitals as well as into the Articles of the future Directive. An extensive transfer of consumer protection rules to collective occupational pension schemes (in particular information requirements, focus of prudential regulation solely on protection of members and beneficiaries without taking into account the social and labour law protecting them already) would lead to an unnecessary increase in cost. This would not be coupled with added value for members and beneficiaries, but rather reduce the attractiveness of occupational pensions both for employers and employees. Collective solutions to extend funded occupational pensions while at the same time promoting the protection of members and beneficiaries through labour law should be encouraged rather than destroyed. We therefore suggest extending the proposed general principles of supervision in Art. 61 by the following two principles: Prudential supervision of IORPs should acknowledge that IORPs have a social purpose. They are established in conformity with national social and labour law and practice and are by definition linked to an employment relationship, intended to provide a supplementary pension for employees. Anything related to occupational pensions which is lawful under national social and labour law (in particular changes to the pension plan) shall be permitted under prudential law for IORPs as well.

7 - 7 - The list defining the scope of prudential regulation stated in Art. 60 could lead to the undermining of national social and labour law and could become a blank cheque for EIOPA and the EU Commission to regulate without regard to national social and labour law. To avoid this, we suggest introducing a second paragraph to this article which requires the Member States to take into account their national social and labour law when transposing this Directive. - IORPs with a social purpose are not competing with financial institutions, in particular assurance undertakings, nor with other IORPs. We do not share the Commission s focus on consumer protection, the concern regarding regulatory arbitrage between the different financial service industries or regulatory arbitrage between Member States (see p. 6 of the proposal). Most IORPs are very limited in their operation, in fact, their operation is often confined to one or several companies or a sector. In addition, in many cases the employment contract stipulates compulsory membership. The idea that all IORPs are competing with each other while sharing a single market with financial service providers is therefore fundamentally wrong. This is confirmed by EIOPA s regular reports: for several years the number of IORPs operation cross-border has remained stable at around 80. The protection of members and beneficiaries through social and labour law is a very important feature of occupational pensions. The employer is the one giving the pension promise and standing in to secure this promise. Therefore there are no actual consumers in occupational pensions. 4. Occupational pensions differ hugely across the EU and the national social and labour law plays an important role for occupational pensions. Therefore, rather than delegated acts adopted by the European Commission, more flexibility is required for the Member States when transposing the Directive. The future division of competences between EU prudential regulation and national social and labour law should respect the responsibility of Member States for the organisation of their pension systems. From our perspective it is mandatory for the Directive to set an overall framework for IORPs in the EU and leave Member States sufficient leeway to make the requirements of the Directive fit their national social and labour law. The historic diversity of occupational pensions is mainly a result of the different role occupational pensions play in different Member States supplementing the public pension from the first pillar. Differences in social and labour law have led to the evolution of different occupational pension systems. The further development of occupational pensions is a competence of the Member States. A transferral to the EU level would be a breach of the principle of subsidiarity. Since December 2009 the Parliament and the Council can delegate power to the Commission to adopt delegated acts (Art. 290) and implementing acts (Art. 291). The aim of these measures is to increase efficiency in the decision making process while at the same time ensuring the European Parliament and Council maintain certain forms of control. According to Art. 290 (2) of the Treaty on the Functioning of the European Union, delegated acts can only enter into force if the European Parliament (EP) and the Council do not express any objections within the period set by the legislative act. The EP can act with a majority of its component members, the Council by a qualified majority. We understand that the EP and the Council can object to delegated acts, but do not have the power to make amendments. It is likely that the Commission

8 - 8 - will issue a Call for Advice to EIOPA when preparing the delegated acts, and that stakeholders will be included in some way in the process. However, to us it is currently unclear how this will work in detail. We oppose the EU-wide harmonisation by delegated acts proposed in Art. 30, 24 (3) and 54 which is neither sensible nor necessary: - Delegated acts (Art. 30, 24 (3) and 54 IORP II proposal) lead to an inadequate one-size-fits-all approach. The proposed information requirements basically call on the Member States to ensure that their IORPs inform the members and beneficiaries depending on the nature of the pension scheme established (Art. 38) as laid out in Art. 39 to 53 and 55 to 58. However, neither the text of the proposed Directive nor the delegated acts seem to leave leeway to the Member States to properly tailor the one-size-fits-all approach of the Commission to their systems (for DB and DC schemes as well as for individual and collective schemes). In particular regarding the information requirements it is not understandable that the requirements have been designed as minimum standards and tailored taken into account different business models (p. 6) to foster occupational pensions. - Central questions having a lasting impact on the retirement provision of the majority of citizens in the most populated EU Member States should under no circumstances be decided through delegated acts leaving only very limited influence to the Council, the European Parliament and occupational pension stakeholders. The delegated act for the risk evaluation of pensions (Art. 30) addresses central questions of regulation (mainly methods for the identification and evaluation of risks) and lifts them onto the European level and only gives the EP, the Council and affected stakeholders very limited opportunities to influence the outcome. This could be a breach of Art. 290 (1) of the Treaty on the Functioning of the European Union, which gives the Commission power to adopt non-legislative acts to supplement or amend certain non-essential elements of the legislative act. The IORP II Directive should therefore instead allow the Member States flexibility to implement the Directive, ensuring an adequate and necessary adaption to the existing IORPs. 5. The main focus regarding governance and risk management requirements needs to be on a practical risk evaluation for pensions. Generally the proposed requirements do not seem to differ much from the currently applicable rules for Pensionskassen and Pensionsfonds in Germany. For a proper assessment of the expected regulation it is crucial which additional requirements will be laid down in the risk evaluation for pensions (Art. 29 and 30). - The fundamental principle that the key functions in the IORP, consisting of risk management, audit and actuarial functions, need to be separated from those of the sponsor drives a wedge between the IORP and the sponsor. This requirement does not fit occupational pensions and will create huge inefficiencies operating pension schemes (Art. 25 (3)). One of the main advantages in the area of efficiency is that IORPs can use the resources of the sponsoring employer to carry out certain tasks. Separating the key function of the IORP and the sponsoring undertaking only makes sense if there was regularly a conflict of interest between the two when exercising their duties. However, the way most IORPs in Germany are structured means that fundamental conflicts of interest between the two parties are unlikely: since the employer has to step in to make sure that the pension promise is met, the employer

9 - 9 - will be committed to an IORP which is professionally and properly run by those holding the key functions. The standard should therefore be that the functions can be carried out by the same person at the sponsor and at the IORP and not the other way round. It should be sufficient if the competent authority can require a separation in justified cases. This would be in line with the objective of Recital 7: The prudential rules laid down in this Directive are intended both to guarantee a high degree of security for future pensioners through the imposition of stringent supervisory standards, and to clear the way for the efficient management of occupational pension schemes. - In many cases, principal-agent-problems are avoided by the very structure of IORPs. This should also be considered adequately in the area of remuneration policy. Remuneration policy, and in particular the frequency, the specific modalities and content of the public disclosure of the remuneration policy will be addressed by a delegated act (Art. 24 (3)). Remuneration Policy does not only apply to the Management Board (Vorstand) and the Supervisory Board (Aufsichtsrat), but also those carrying out a key function and other employees whose decisions could significantly influence the risk profile of the institution. This includes the key functions and other activities which the IORP has outsourced. We share the objective of the Commission to avoid conflicts of interest and principal-agent-problems. However, the proposed Directive does not take into account that in some Member States the structures of IORPs prevent the development of such conflicts or at least mitigate them. Many of the requirements regarding remuneration policy laid down in Art. 24 therefore do not fit German IORPs. In Germany the members and beneficiaries or their representatives are often involved in the decisionmaking processes in the IORP; in addition, the employer has to stand in for the pension promise made. Conflicts of interest or excessive risk taking should be avoided by the very structure of IORPs. As a supplement to the first pillar, IORPs have developed very differently in different Member States. They have been shaped by national social and labour law, and often the social partners play an important role. This diversity should be recognised. The IORP II Directive should therefore only set the framework for rules regarding the remuneration policy, the details should be decided by the Member States particularly bearing in mind that at least in Germany so far there have been no problems in this area. This is the only way to take appropriately into account existing structures which successfully prevent conflicts of interest. The same applies to the remuneration policy of an IORP, which because of shared key functions and efficiency reasons often follows the remuneration policy of the sponsoring undertaking. - The requirements for the risk evaluation of pensions to be conducted by the IORPs (Art. 29) are very vague in the proposed text. The future Directive should recognise the diversity of IORPs across the EU in this area as well, and leave it to the Member States to design the detailed requirements. A delegated act as proposed in Art. 30 is not the adequate means to answer regulatory questions which are of such central importance. In addition it is highly unlikely that the measures would take national social

10 and labour law adequately into account if the methods for the identification and evaluation of risk were decided through a delegated act. The Directive should therefore leave more flexibility to the Member States when implementing the Directive. In particular for specifications around the risk evaluation it is important to bear in mind the national background and tailor any specifications to fit the national set up. This includes questions around the legal establishment of the pension promise, the complexity of the promise itself and its relations to other pension promises made by the same sponsor, type of financing, risks covered, risk-sharing between employee, IORP and employer, number of sponsoring employers and their relation with each other, financing and liability constellations, existence of and level of protection offered by pension protection schemes for IORPs or their sponsors. Under no circumstances should the delegated acts be used to prepare for or even introduce the Holistic Balance Sheet through the back door. We therefore welcome that Art. 30 states that the delegated act shall not impose additional funding requirements beyond those foreseen in this Directive. 6. The proposed information requirements need to add value for all members at a reasonable extra cost. For the majority of members the proposed information requirements will not provide any added value. The reason being that the new and extensive information requirements in Art. 38 to 58 to be given to prospective and current members and beneficiaries are in large parts designed to fit (pure) defined contribution plans. In addition, they (too) closely follow the information requirements for retail financial products, which are actively sold to consumers, who have to take core investment decisions and accordingly bear significant risk. - It is difficult to capture the information relevant for the different systems adequately in a single form. The information requirements laid down from Art. 40 onwards are clearly geared towards (pure) defined contribution schemes. However, these requirements are supposed to be applied to all systems (including defined benefit plans and contribution-orientated defined benefit plans), even though the different defined contribution and defined benefit plans bring different benefits, choices and risks for their beneficiaries. In addition, the pension benefit statement is supposed to be applied by both individual and collective schemes, even though in the latter members or their representatives are often involved in the decisions taken by the IORP and the individual member does not have many or even no choices (e.g. because of tariff agreements which stipulate automatic enrolment). The one-size-fits-all approach of the new pension benefit statement requires extensive standardised information: an individualised breakdown of cost (Art. 49 (1)), which is often difficult and expensive to determine or only possible as a rough estimate while only fitting for pure DC schemes; very detailed information requirements regarding the investment profile (Art. 51) and past performance (Art. 52), which are of no use to members and beneficiaries of collective systems, where the individual does not have any investment choices. From our perspective there is no added value in providing this information. The individual breakdown of cost does not make any sense for plans which are solely financed by the employer, where the employer by definition bears all related costs. In Germany, 27% of employers offering an occupational pension in the private sector were solely financed by the employer in To be

11 added to this number should be those employers who contribute to an occupational pension plan, but where employees do so as well to another occupational pension plan. 4 Apart from these arguments, some of the requirements are technically not feasible for some of the collective schemes. In any way the new information requirements will bring additional costs (see Box: Estimated costs for IORPs), which in many cases will lead to lower benefits. Box: Estimated costs for IORPs Based on the IORP II proposal from March 2014, the aba estimated the likely costs for German IORPs. The overall costs for German IORPs would be EUR 132.7m at implementation, with running costs at EUR 43.3m per year. Considering the information requirements alone, the estimated total one-off costs for German IORPs would be around EUR 94.8m, the expected total running costs are around EUR 16.5m. The costs for the information requirements would be borne disproportionately by small and medium sized IOPRs: EUR 77.4m of the total one-off costs would be borne by them and they would carry EUR 13.4m of the running costs. Previously, the aba provided data to the Input for the Impact Assessment on pillar II and III requirements of the IORP II Directive in June 2013 which was based on the EIOPA response to the European Commission s call for advice. - IORPs are not financial institutions, and their members and beneficiaries are not consumers. The one-size-fits-all-approach (for defined benefit and defined contribution promises as well as for individual and collective schemes) also ignores the difference between members and beneficiaries of occupational pensions and consumers of financial products. This lead to the application of rules coming from the area of investment as well as consumer protection (such as the Key Information Document), independent of the type of pension promise and the occupational pension system. The market for retail financial products suffers from information asymmetries. However, if members or their representatives are involved in the decision-making processes of the IORP and the employer is liable for the pension promise made, a comparable asymmetry does not exist. Since members in most IORPs do not have any or only very limited choice, and the employer partly or completely bears the related costs, the need for information is not comparable to the need for information regarding financial products. - Pension Benefit Statements should only include information which is relevant to the specific institution. The main objective when designing information requirements for occupational pensions is the added informational value regarding the specific scheme an employee is a member or beneficiary of, always bearing in mind the related cost. However, this principle cannot be found in the proposed Directive text. We are therefore concerned that an increasing administrative burden and rising costs 4 Bundesministerium für Arbeit und Soziales, Alterssicherungsbericht 2012, p. 140.

12 without any evident added value for the members are likely for German IORPs. Any additional costs are in most cases borne by the beneficiaries, in effect leading to lower pensions. - To avoid unnecessary information and high costs, it should be the Member States who tailor the requirements so that they fit their existing systems: defined benefit plans, defined contribution plans, hybrid schemes and the different benefits, choices and risks these different systems offer their members and beneficiaries. For collective occupational pension systems with obligatory membership and no choice for members, where employers are liable for the pension promise made and bear all or some of the related cost and where any profit goes directly towards the members and beneficiaries the proposed information requirements are neither sensible nor acceptable. - The IORP II Directive should therefore only set guidelines and principles. Every Member State should then decide on the national requirements according to their existing occupational pension system. This way, the approach of the pension benefit statement would be kept but ensure at the same time that the information requirements are adequate. It is therefore of utmost importance to amend Art. 54, which stipulates the remaining questions and details should be set through a delegated act by the European Commission. The competence to adopt a delegated act should be replaced by an adequate framework for the transposition by the Member States. 7. The Impact Assessment which the Commission published alongside the IORP II proposal is not sufficiently reliable. The Impact Assessment did not receive a positive opinion from the Impact Assessment Board neither at the first nor at the second submission (p. 5 of the proposed Directive). From our perspective this is partly due to the Impact Assessment failing to satisfy the requirements set out in the Impact Assessment Guidelines of the European Commission. We cannot confirm many of the statements the Impact Assessment makes for German IORPs (see aba assessment of the impact assessment which is available on the aba Website). The overall costs for German IORPs would in our estimates be EUR 132.7m at implementation, with running costs at EUR 43.3m per year (see also the Box on p. 11). Further cost estimates for German IORPs can be found in the aba estimation of costs (in German with an English summary) which is available on the aba Website. 8. Regarding the cross-border activity of IORPs, the IORP II proposal is a step in the right direction. However, we are disappointed that Art. 15 requires cross-border schemes to fully fund their technical provisions at all times. From our perspective it is unlikely that the Directive will significantly foster cross-border activity, particularly because the main barriers to cross-border activity go beyond the reach of a prudential directive. We would like to emphasise that a working system of transfers of pension schemes (as defined in Art. 6(b)) is a key condition for the efficiency of collective occupational pensions. A fragmentation of pension promises should therefore be avoided where possible.

13 IORPs should be able to continue to cover their risks (longevity, invalidity and survivor s pensions) using re-insurance, therefore an amendment of the Solvency II Directive is necessary. This could be achieved by an addition to Art. 76 of the proposed IORP II Directive. 10. The special character of occupational pensions needs also to be taken into account in future negotiations of the IORP II Directive. The division of competences within the European Commission will be discussed over the coming months. In this regard, we suggest an equal responsibility of DG MARKT and DG EMPL and, similarly, the EP Committees ECON and EMPL for occupational pension matters. The representatives in the Occupational Pension Stakeholder Group (OPSG) at the European supervisory authority EIOPA should reflect the main stakeholders in occupational pensions. Particularly, the group should include employer representatives, because without employers there would be no occupational pensions. We therefore propose an amendment of Art. 37 of the EIOPA Regulation, which stipulates that IORPs, the members and small and medium enterprises as well as the relevant professional associations and independent academics should be represented in the group. Employer representatives should be added to that list.

14 Article aba comment Social purpose of IORPs Relevant articles: Art. 6 (c) Definition of sponsoring undertaking, Art. 61 and Recital 20 Even though Art. 6 (c) includes the definition of sponsoring undertaking requiring them to act as an employer, the proposed IORP II Directive does not adequately recognise the special role employers have in the delivery of occupational pensions. We therefore below propose amendments to Art. 61 as well as Recital 20. While the protection of members and beneficiaries is an important goal of prudential regulation, it can in contrast to third pillar pensions only be achieved in conjunction with national social and labour law. We therefore suggest amending Art. 61 (General principles of prudential supervision) by adding two new principles: 1. Prudential Supervision of IORPs should acknowledge that IORPs have a social purpose. They are established in conformity with national social and labour law and practice and are by definition linked to an employment relationship, intended to provide a supplementary pension for employees. 2. Anything related to occupational pensions which is lawful under national social and labour law (in particular changes to the pension plan) shall be permitted under prudential law for IORPs as well. Recital 20: Institutions for occupational retirement provision are financial service providers which bear a heavy responsibility for the provision of occupational retirement benefits and therefore should meet certain minimum prudential standards with respect to their activities and conditions of operation. Defining IORPs as financial service providers is not adequate. Therefore we propose the following amendment to take this into account: Institutions for occupational retirement provision are pension institutions with a social purpose which bear a heavy responsibility for the provision of occupational retirement benefits and therefore should meet certain minimum prudential standards with respect to their activities and conditions of operation. Their social function and the triangular relationship between the employee, the employer and the IORP

15 must be adequately acknowledged and supported as guiding principle of the Directive. This amendment to Recital 20 is consistent with the statement Commissioner Andor made in January 2013: Pension funds are there first and foremost to serve a social purpose. Only in second place should they act as financial institutions, given the huge assets they manage. 5 Occupational pension business of life insurers Relevant articles: Art. 4 of the IORP Directive, Art. 76 => change of- Art. 306 (b) Solvency II Directive (related Recital 12) To note: Art. 76 is an amendment of the Solvency II Directive. We understand that Member States which are currently applying Art. 4 of IORP I will be allowed to use Solvency I Capital Requirements until December We do not understand why this amendment has not been made in Art. 4 but rather in Art. 76 referring to the old Life Insurance Directive (2002/83/EC). The aba would consider it sensible to have a prudential regulation for occupational-retirement-provision-business of insurance undertakings similar to the IORP prudential regulation because they also fall under national social and labour law. We agree with the condition stated in Art. 4 ( In that case, all assets and liabilities corresponding to the said business shall be ring-fenced, managed and organised separately from the other activities of the insurance undertakings, without any possibility of transfer ). Small pension institutions and statutory schemes Art. 5 Small pension institutions and statutory schemes The amendment in Art. 5 (2) regarding statutory schemes seems to be of a linguistic nature. From our perspective, Art. 5 (2) is not relevant for Germany. The supplementary pension system of the public sector is generally set up by the social partners (exceptions: Hamburg and Bremen), and in addition nothing is guaranteed by a public authority. Cross border activity procedures Relevant articles: Art. 12 Cross-border activities and procedures; Recital 22-23; The cross-border activity of IORPs (Art. 12) should be facilitated by a mutual recognition of the information requirements (Art. 12 (10)) and the rule that in the future the competent authorities in the Member States cannot require cross-border IORPs to comply with additional investment rules. 5 EU Press Release

16 Art. 20 (8) Art. 13 Cross-border transfers of pension schemes; Recital 24; in addition relevant: no change of Art. 15 (3), but new Art. 20 (8); Definitions in Art. 6 (completely new: (k) transferring institution and (l) receiving institution ; Detailed explanation of the proposal, p. 6); Art. 12 (10): 10. Member States shall ensure that an institution carrying out cross-border activity shall not be subject to any requirements concerning information to members and beneficiaries imposed by the competent authorities of the host Member State in respect of the members which that cross-border activity concerns. Art. 20 (8): The competent authorities of the host Member State of an institution carrying out cross-border activity as referred to in Article 12 shall not lay down investment rules in addition to those set out in paragraphs 1 to 6 for the part of the assets which cover technical provisions for cross-border activity. The Directive is a step in the right direction; however, it is unlikely that the Directive will encourage cross-border activity. This is mainly because the main barriers to cross-border activity go beyond the reach of a prudential directive. Article 13 (Cross-border transfers of pension schemes) is new and part of Michel Barnier s initiative to remove obstacles to the cross-border provision of services. 6 We would like to emphasise that a working system of transfers of pension schemes (as defined in Art. 6(b)) is a key condition for the efficiency of collective occupational pensions. A fragmentation of pension promises should therefore be avoided where possible. How we understand Art. 13: Art. 13 does neither refer to individual portability of pension rights or pension assets, nor to an outsourcing activity e.g. of the administration. Rather, Art. 13 refers to collective portability, where the pension promise made under social and labour law is not touched. The Detailed Explanation (p. 6) supports this interpretation: The institution will operate the pension scheme in accordance with the social and labour law of the host Member State, thereby not changing the level of protection of the members and beneficiaries concerned by the transfer. To make this clearer in the article text, we propose the following additions: The following should be added to Art : Member States shall allow institutions authorised or registered in their territories to transfer all or a part of their pension schemes to receiving institutions authorised or registered in other Member States. National social and labour law is not affected by this article. 6 See Press Release from the publication of the Directive.

17 The following should be added to Art : The transfer of all or part of a pension scheme between transferring and receiving institutions authorised or registered in different Member States shall be subject to prior authorisation by the competent authority of the home Member State of the receiving institution. The application for authorisation of the transfer, which can only be granted if the continuation of the pension promise and the social and labour law relevant to the pension promise is ensured by the receiving IORP, shall be submitted by the receiving institution. Requirement of approval Art. 13 (3) limits cross-border transfers (see also Recital 24): Unless national social and labour law on the organisation of pension systems provides otherwise, the transfer and its conditions shall be made subject to prior approval by the members and beneficiaries concerned or, where applicable, their representatives. In any event, information on the conditions of the transfer shall be made available to the members and beneficiaries concerned or, where applicable, their representatives at least four months before the application referred to in paragraph 2 is submitted. In pension schemes which are not pure DC, from our perspective it is absolutely necessary that the sponsoring employer approves the transfer of the pension scheme. However, the current proposal only provides for approval by the competent authority and the members and beneficiaries, or, where applicable, their representatives. Art should therefore be amended to include the provision that the application of the IORP for a transfer requires the prior written consent of the sponsoring undertaking if it is partly or fully liable to ensure the pension promise is met. Requiring the individual response of every member and beneficiary is likely to lead to a situation where the transfer will not be made. Just considering to the return rate (inertia will mean that some members and beneficiaries will not respond) a transfer under the proposed text seems unlikely. However, maintaining the status quo might in some cases lead to suboptimal member outcomes. The objective to maintain the level of protection of the members and beneficiaries in question should be the task of the representatives in the most important committees of the IORP or in the work force representation. Representatives are likely to have more expertise and can dedicate more time to the decision than the individual members or beneficiaries. Contrary to the requirement of individual approval, the involvement of representatives is likely to lead to more efficiency and better solutions for all involved stakeholders. We therefore propose the following amendment: Unless national social and labour law on the organisation of pension systems provides otherwise, the transfer and its conditions shall be made subject to prior approval by the members and beneficiaries concerned or, where applicable, their representatives representatives in the highest committee of the IORP, or, if such a committee does not exist, by the employee representation.

18 It should also be clarified that the rights and liabilities of the transferring IORP end with the transfer. Further open questions: What is understood under representatives? Is this the work council (Betriebsrat) or the assembly of representatives (Vertreterversammlung)? In case there are no representatives, is it correct that all members and beneficiaries have to give their consent? Do all members and beneficiaries need to agree or only those members whose benefits entitlements will transfer? What if one member refuses? (no transfer at all? Or no transfer for the benefit entitlements of the member?) Active members often have representatives but beneficiaries do not, does this mean that for them you always need an individual agreement? What is exactly an agreement? Can an absence of reaction be considered as an approval? See Annex 1 within this document for the legal requirements regarding collective transfers in Germany (Art. 14 and 44 VAG). Quantitative requirements Article 14 Technical provisions; Article 15 Funding of technical provisions; Article 16 Regulatory own funds; Article 17 Available solvency margin; Article 18 Required solvency margin; Article 19 Required solvency margin for the purpose of Article 18 (3) Recitals Recital 57 We welcome that the Commission states in the detailed explanation (p. 8): A further harmonisation of rules relating to the financial solvency situation of the institution is not being proposed. We note that there have been no significant changes in the funding of technical provisions (now Art. 15), in the provisions for regulatory own funds (now Art. 16), required solvency margins (now Art. 18) and required solvency margin for the purpose of Art. 18 (3), which is now Article 19. In Article 17 (available solvency margins) we welcome the deletion of former paragraph 5. Considering the fact that these important paragraphs have not changed, Recital 29 which provides that institutions which provide guarantees should at least hold the same additional own funds as life-assurance companies should be deleted. This recital has its origin in the current IORP-Directive, which was implemented in reference to Directive 2002/83/EC for life insurance undertakings and in relation to the solvency rules of Solvency I that were applied to IORPs and to Life insurance undertakings in the beginning. Due to the implementation of Solvency II for (life) insurance undertakings and because of the various differences between IORPs and life insurers, there are separate regimes in place in reference to additional own funds etc. Therefore, this recital has become obsolete and should thus be deleted without replacement. We have noted that Recital 57 explicitly refers to a review of the IORP II Directive regarding the calculation of the technical provisions, the