The European Association of Paritarian Institutions (AEIP) has published a position paper on the upcoming review of the IORP II Directive, which outlines the association’s key points and takeaways on the forthcoming review.

It called for the review to adopt a principles-based approach and lead to an implementation of the proportionality principle that takes the diverse landscape of IORPs within and across EU countries into account.

The AEIP added that the review must underline that IORPs are inherently different from other financial market entities, noting they are mainly non-profit, employees generally benefit from mandatory affiliation with them, and by their nature they are second-pillar entities.

The paper also urged the review to stipulate provisions that remain within the framework of minimum harmonisation and to not change the funding requirements or introduce capital requirements for IORPs.

With the European pensions space gradually moving from defined benefit (DB) to defined contribution (DC) schemes, the AEIP suggested that the review should include a nuanced approach to address the shift from DB to DC.

“There are many forms of both DB and DC, with different types of guarantees or levels of directness of translating investment returns in pension outcomes,” the association said.

“The fact that entitlements are administered as DB or DC from a legal point of views is not paramount.”

The AEIP also called for national competent authorities to stay independent in deciding on the supervisory policy for IORPs, which remain under the national social and labour law.

It suggested that there should be more freedom for pension funds to layer the information to their members and that there was a need to improve digital tools to enhance member communications.

In the wake of the LDI crisis in the UK, the AEIP said national supervisors should oversee whether EU IORPs with significant derivative portfolios are able to meet margin requirements.

However, it noted that mandates for this supervision already exist under IORP II and its national implementation, and that very large rate hikes may result in issues not because of the size of liquidity buffers, but by the limited capacity of financial markets to move liquidity into cash.

Finally, the AEIP stated: “AEIP and its members fully support diversity and inclusion in the management boards.

“In a paritarian pension funds IORPs’ boards are appointed by different social partners and not by the IORP.

“A further exchange is needed to assess how this measure can best work in practice.”

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