The updated Institutions for Occupational Retirement Provision (IORP) Directive proposes a Solvency II type regulation for pension schemes, but a lot less like Solvency II than it was a year ago. The initial proposals from the EU pensions and insurance regulator EIOPA focussed primarily on defined benefit pension schemes and sought to replicate the Solvency II capital requirement provisions, including the 25% market shock for real estate. In a statement on 23 May 2013 Internal Market and Services Commissioner Michel Barnier indicated a change of direction. Whilst it remains the intention to move forward with some aspects of IORP, the Solvency Capital Requirement elements are being deferred.

This change of direction, and others, are reflected in the updated draft. The most notable shifts are:

i)   The emphasis has moved from defined benefit pension schemes to defined contribution. This recognises at least the futility of introducing extensive regulation for something that is becoming largely irrelevant. This change of emphasis has implications for the rest of the Directive as the Solvency Capital Requirements as originally envisaged and as feature in Solvency II are only relevant for defined benefit schemes.

ii)   As indicated above, the previous draft had incorporated the Solvency Capital Requirements from the Solvency II draft level 2 regulations although slightly bizarrely from an out-of-date Solvency II draft. Last year, it was announced that these were being delayed for IORP. The current draft drops entirely the idea of an EU wide capital requirement, instead leaving this to local regulators. The wording does imply that this might be revisited again by the regulator later.

iii)    Provisions are introduced to encourage pension funds to participate in long-term financing, particularly cross-border.

Commissioner Barnier's suggested in his comments last May, that he intended "to come forward with a proposal for a Directive to improve the governance and transparency of occupational pension funds". This does indeed seem to be the focus of the current draft.  The Directive does include governance and risk management requirements that will have a knock on effect on service providers. Our previous comments on independent audit of controls environment for investment managers with life insurers as investors under Solvency II will be equally applicable for those with pension funds. Our previous comments can be found here.