The Dutch parliament should “draw a yellow card” to block proposed revisions to the IORP Directive, Pieter Omtzigt has argued.
In an initiative memorandum for parliament at a meeting of the select committee for Social Affairs, the Christian Democrat MP said: “The proposed directive is counter productive. It will not encourage countries to introduce capital-funded pension systems, but will in particular lead to supervisory arbitrage and the possibly of tax arbitrage.”
If nine countries issue a yellow card, the European Commission must reconsider its proposal.
Three weeks ago, Omtzigt launched a similar proposal against the suggested IORP review in parliament but received support only from the Freedom Party (PVV), the elderly party (50PLUS) and the Socialist Party (SP).
In the meantime, the so-called “Belgium route” for pension funds has generated much debate, following confirmation that the pension fund of Aon Netherlands is thinking to relocate its pension plan there.
“We need to ask ourselves whether we must allow pension funds to move from A to B in Europe,” said Omtzigt, who did not see any benefits from a European framework to prevent supervisory arbitrage.
“The pensions system is a national issue, and it should stay like that,” he said. “The exceptions should be border labourers and people who work in more than one country. However, the Directive does very little for them.”
Omtzigt also complained that the revised IORP only covered the capital-funded system.
“Many other systems, such as pay-as-you-go systems and companies that keep financial reserves for pension benefits, are excluded from the rules,” he said.
”Capital-funded systems are facing many additional requirements, whereas the genuinely weak pension elements in Europe remain untouched.”
In his opinion, the rules for governance and pensions information in the directive are unnecessarily detailed.
“The EC even offers explicitly the option to draw up rules for the letter font of the pension statements,” he said.
“The question is, which problem the EC is solving, and why this must happen from Brussels? They haven’t regulated how bank statements should look, and haven’t harmonised manuals for cars or mobile phones.”
According to Eric Bergamin, a pensions lawyer, the Netherlands has made poor decisions in its lobbying against the IORP.
“It has continuously stated that we don’t want stricter solvency requirements in European legislation, but we have insufficiently advocated a proper European harmonisation of rules for capital-funded pensions,” he said.
“As we do allow mobility, companies can now move to Belgium, using supervisory arbitrage.”
For example, the Belgian supervisory regime does allow higher discount rates but demands a financial guarantee from the employer.
In Bergamin’s opinion, harmonisation should have provided for European definitions of a fully funded scheme, investing under the ‘prudent person’, as well as a standard for a discount rate and recovery periods.
Bergamin said: “The market value of certain safety nets, such an obligation to plug funding gaps in Belgium, and national safety nets in the UK and Germany, could have been taken into account in schemes’ holistic balance sheets. However, we don’t have all these elements now.”
He said Brussels was looking to sharpen solvency rules, and pointed out that commissioner Michel Barnier had already announced that these would be looked at by the European Commission in its new assembly.
Omtzigt also warned of “prudential supervision backdoor” in the proposed IORP review.
Author: Maarten van Wijk