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

5. 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

6. 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

8. 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…

9. 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?

10. Supervisory cooperation – EU (1) • At EU level, ‘Lamfalussysystem’ 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

11. 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”)

12. 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

13. 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

14. 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 • couldn’t agree more • P4 – Adequate powers • in favour of strong powers but used with discretion and proportion

15. 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

16. 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

17. 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’!

18. 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

19. Contact EFRP Koningsstraat 97 rue Royale 1000 Brussels Belgium Tel.: +32 2 289 14 14 Fax: +32 2 289 14 15 efrp@efrp.org www.efrp.org