PensionsEurope has told the European Commission (EC) that pension funds are suffering from an unnecessarily high reporting burden that is adding heavy costs and hurting pension fund members.

The body has also said that several of the reporting requirements that pension funds have to adhere to should be removed or lessened in its response to the EC's consultation paper on reporting, titled Administrative burden — rationalisation of reporting requirements. The consultation is an attempt by the EC to find ways to reduce business reporting regulations in the EU to try and improve the competitive position of EU businesses in global markets.

PensionsEurope said that the regulatory burdens on pension funds are set to increase due to the IORP II Directive and cross-sectoral legislation, such as the Sustainable Finance Disclosure Regulation (SFDR) and Digital Operational Resilience Act (DORA). These dictates are adding administrative costs that the association said are restricting the industry's capacity to make investments contributing to economic growth as well as green and digital transformation. This in turn, it said, will have a negative consequence on pension funds’ ability to provide good retirement incomes.

The first way in which the EC could reduce pressure on pension funds is by reducing or simplifying the reporting requirements around SFDR. PensionsEurope said the majority of investments made by many pension funds are in UCITS and AIFs, whose providers are already covered by the SFDR. Consequently, there is double reporting taking place of these assets.

It is also challenging to prepare the Principal Adverse Impact (PAI) disclosures under the SFDR as it is difficult to add up PAI disclosures provided for investment mandates by external managers. The Key Performance Indicators (KPIs) are often unclear and do not provide pension funds with actionable information for their responsible investment decisions.

A second suggestion revolves around the high reporting requirements associated with derivative trading. Under the European Market Infrastructure Regulation (EMIR) and Securities Financing Transactions Regulation (SFTR), pension funds’ service providers deliver daily reports, which PensionsEurope said is an unproportionate administrative burden. "The usefulness of their intensity can be questioned," PensionsEurope stated.

It also believes the need for pension funds to report to ESMA on derivative contracts in trade repositories within a day of a trade should be eased, to four or five days.

As with SFDR, there is also double reporting happening due to an overlap between EMIR and MiFID regarding derivative transactions. Double reporting is enhanced because EMIR is supervised by the ESMA, while MiFID is supervised by the national supervisor. "Overlaps between EMIR and MiFID reporting requirements should be removed," PensionsEurope said.

Thirdly, it could be reviewed whether all the documentation that pension funds’ service providers have to provide in the context of MiFID and AIF "serves a purpose".

"The annual MiFID cost report is almost identical to regular cost reports but requires a different format based on MiFID requirements. More freedom with regards to the format would avoid duplicate work," said the association, adding that the annual MiFID statements are "barely read or regarded" by anyone.

Stress tests for EIOPA are also too costly, PensionsEurope said. "The costs run into the tens of thousands of euros per pension fund, with much higher costs for bigger and more complex pension funds," it says. These costs are even higher when a pension fund has to hire a consultant. "As an example, one pension fund paid a consultant a hundred thousand euros for a stress test. With EIOPA’s intention to broaden the spectrum of the percentage of pension funds participating in its stress test, more medium-sized pension funds would get into scope. For these, the relative burden and costs would be even higher."

Finally, in addition to EU reporting requirements, pension funds in some member states need to comply with national reporting obligations. PensionsEurope argued that reporting requirements that overlap with some national reporting requirements should be coordinated and unnecessary reporting should be decreased.

"For example, the ESAs should to a higher extent collect the data which is already reported at the national level and to the NCA," it says. "The ESAs should specify reasons for justifying reporting obligations that exceed national regulations.

"We experience several ad hoc information requests by ESAs in the pension sector which are unnecessary and burdensome. Recent examples concern an information request on DORA from EIOPA in 2022 (before the Act even entered into force) and requests for the supervisory review and evaluation process for investment firms (SREP) from EBA and ESMA in 2023.

"The questions in these requests are not tailored to the pension sector and it remains unclear what goals these requests serve and how the data will be used. Moreover, the formats are hard to work with and ESAs are not available to give additional guidance to their requests."

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