"IORP II and its solvency requirements: Defined benefit plans: RIP*?"
Date of Live Session: Tuesday, Feb. 28, 2012
Replay: Available anytime until March 30, 2012
Live Session Time:
11:00 AM Eastern Daylight Savings Time (Toronto, Canada)
4:00 PM UK Time
5:00 PM Central European Time
The IPEBLA Teleconference Committee has assembled an expert panel of speakers who will address the topic, “IORP II and its solvency requirements: Defined benefit plans: RIP?".
This Teleconference will be conducted in English.
An Van Damme, Claeys & Engels, Belgium
Hans-Joachim Liebers/Christian Hoefs, Hengeler Mueller, Germany
Philip Bennett, Slaughter and May, UK
Speaker & Moderator:
Kees-Pieter Dekker, KWPS Corporate Pension Solutions, The Netherlands
The European Directive 2003/41 EC of 3rd June, 2003 on the activities and supervision of institutions for occupational retirement provision (the IORP Directive) is currently under review. The European Commission has issued a call for advice to EIOPA (the European Insurance and Occupational Pensions Authority), which in its turn has asked for comments from all stakeholders on EIOPA’s response.
On Thursday 1st March, 2012 the European Commission is holding a public hearing in Brussels on the Revision of the Directive on Institutions for Occupational Retirement Provision (the IORP II proposal). IORP II proposes to align the solvency requirements for pension funds to those that have recently been adopted for insurance companies under the Solvency II Directive, taking into account, however, the specificities of a pension fund.
EIOPA has proposed the introduction of the concept of a "Holistic Balance Sheet". This would recognise on the asset side of the pension fund balance sheet the value of the sponsor covenants and protection available from any pension protection compensation fund as assets to cover the liabilities of the pension fund. On the liability side of the pension fund’s balance sheet, it would quantify the liabilities (i.e. the obligation of the pension fund to pay pensions) according to the Solvency II rules, including minimum and solvency capital requirements.
For some stakeholders IORP II is a logical and necessary step towards more secure pensions. In certain jurisdictions, however, the current proposals would cause a huge increase in the funding requirements for defined benefit plans run by a pension fund. According to the UK National Association for Pension Funds (NAPF) the impact in the UK would be to increase defined benefit pension plan liabilities by around £300 billion (approximately €360 billion). These calculations are without allowing for the additional requirement to hold any additional minimum and solvency capital. To provide context, the UK national debt recently exceeded £1 trillion (where a trillion is one thousand billion). The impact on defined benefit plans and their sponsoring employers in a number of EU member states could be catastrophic.
So, unsurprisingly, "IORP II and its solvency requirements" is currently a very hot topic in Europe with implications not just for pension funds in the EU, but also for multi-national companies established outside of the EU with subsidiaries in the EU which sponsor pension funds in the EU.
This teleconference will look at:
- the current differences in solvency requirements for pension funds established in different European jurisdictions (Belgium, Germany, the Netherlands and the UK) and the pension protection mechanisms applicable to pension systems falling outside the scope of the IORP Directive (such as the German book reserves);
- the solvency requirements applicable to insurance companies under the Solvency II Directive;
- the solvency requirements under the IORP II Directive: the proposal of the European Commission and the response of EIOPA to the call for advice;
- a reaction from Belgium, Germany the Netherlands and the UK on the solvency requirements proposed in the IORP II Directive;
- the scope for EU member states to pass legislation to allow defined benefit IORPs to transfer their obligations to the sponsoring employer (to become book reserve arrangements) with IORPS assets being transferred to a security fund as security for the sponsoring employer’s obligations to pay those transferred pensions. Such a transfer would then take the pension arrangements previously provided by the IORP outside of the IORP II Directive (just like the German book reserve arrangements).
Length of teleconference:
The panel discussion will run for approximately 70 minutes, followed by a 20-minute question and answer session.
* Rest in Peace.
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