The European Commission’s (EC) proposed reform of the IORP II Directive will increase the “administrative burden” for the sector, according to PensionsEurope.

In its position paper on the IORP II review, the association also criticised the “extensive lack of proportionality” in the proposed amendments, despite welcoming the “willingness to develop and strengthen supplementary pension schemes across the EU”.

However, it argued that the EC has “not conducted a proper impact assessment” before publishing its proposal to change the directive, which goes against its own better regulation guidelines.

PensionsEurope secretary general, Matti Leppälä, said: “The proposal to review the IORP II directive would create additional burdens and obligations to pension funds. The review should aim to increase occupational pensions in Europe and improve the possibility of companies to offer their employees workplace pensions. Europeans need more funded pensions.”

A key issue raised by the association is the EC’s intention to review Article 19 of the directive. Under current plans, an investment framework solely based on the risk-based prudent person principle will be introduced. This would allow member states to impose restrictions only if the risk is fully borne by members and beneficiaries.

However, PensionsEurope thinks that the current prudent person principle and the fiduciary duty are “sufficient and allow for proper diversification of portfolios”.

“In member states with occupational DB schemes, existing quantitative restrictions have not prevented IORPs from achieving diversified portfolios. However, too rigid percentage-based investment limits may not be inherently aligned with a genuinely risk-based framework,” the position paper stated.

Therefore, it stressed that any reform of Article 19 should reinforce a “coherent, risk-based framework” while, in line with the IORP II Directive’s minimum harmonisation approach, preserving member states’ discretion, avoiding unnecessary rigidity and ensuring that the investment capacity of IORPs is not inadvertently constrained.

In its position paper, the association also opposed the proposal to introduce the concept of double materiality and the integration of sustainability preferences when IORPs can gauge the sustainability preferences of their members and beneficiaries.

On the concept of double materiality, PensionsEurope believes that the IORP II Directive should only focus on financial risks related to the depreciation of assets due to regulatory change (so-called stranded assets).

It also highlighted that when it comes to sustainability preferences, members and beneficiaries, or their representatives, are often involved in the governance structure and set-up of the investment policy.

“This means that the IORP already has structures in place that allow the adequate incorporation of the sustainability preferences of members into the decision-making process,” it stated.

In addition, PensionsEurope believes that the proposal concerning the outsourcing of IORPs' activities and benchmarking/underperformance, as well as the introduction of a structured supervisory dialogue, do not add value in the existing IORP supervisory environment.

“PensionsEurope believes that a structured dialogue can create external indirect pressure to IORPs relating to issues that are usually competencies of their governance. We do not wish to see any external disruption of IORPs' governing models,” it said.

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