EFRP views on supervision of private pensions Mr. Jaap MAASSEN Chairman EFRP Warsaw, 19 September 2006

2 Key messages 1.EFRP is the only European industry representative focussing on supplementary private pensions 2.Supervisors and IORPs share a common goal: deliver secure and affordable pensions 3.To develop and flourish, supplementary private pensions need a stable and supportive regulatory environment 4.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, ‘Lamfalussy system’ 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 1.EFRP is the only European industry representative focussing on supplementary private pensions 2.Supervisors and IORPs share a common goal: deliver secure and affordable pensions 3.To develop and flourish, supplementary private pensions need a stable and supportive regulatory environment 4.CEIOPS should embrace occupational pensions as part of its core mission

19 Contact EFRP Koningsstraat 97 rue Royale 1000 Brussels Belgium Tel.: Fax: