Aon Hewitt Slams Obscene Haste of EIOPA Action

01 August 2012 (PLANSPONSOREurope.com) - Aon Hewitt has slammed the “obscene haste” of the European Insurance and Occupational Pensions Authority's (EIOPA’s) actions around its quantitative impact study (QIS) into new solvency rules for pension schemes which experts warn could cause plan sponsors to close their defined benefit (DB) plans.

Responding to EIOPA’s quantitative impact study (QIS), the pension consultants have highlighted three key flaws in the process.

Kevin Wesbroom, managing principal at Aon Hewitt said: "The obscene haste with which EIOPA is acting casts grave doubts on the process and heightens our concerns that the European commission is seeking simply to impose insurance style solvency standards on IORPs [Institutions for Occupational Retirement Provision]. The corresponding process for insurers took a significant amount of time with fundamental points still unresolved, even after seven years of discussion and five QISs. IORPs across Europe have a much greater diversity than European insurers and so the timetable to develop suitable proposals should be extended not compressed.

“As well as being rushed, we believe the consultation process is fundamentally flawed because we still do not know how any new proposals will be implemented. We are worried that it may destroy the flourishing and successful current system of IORPs across Europe.”

Aon Hewitt also accuses EIOPA and the commission of failing to consider viable alternatives to the flawed approach that they are seeking to force on the industry. For example, there has been no debate and discussion about the balance to be struck between greater security for members’ benefits and the competitiveness of the sponsors backing those IORPs, a key consideration that should not be overlooked.

“We urge EIOPA and the commission to consider how their proposals compare with alternatives and point to the ‘funding stabilisation’ approach, recently adopted in the US, which eases the burden on plan sponsors in light of artificially low interest rates. It is imperative that the EU considers how its current approach, specifically with regard to funding obligations, is likely to challenge the global competitiveness of European companies relative to companies enjoying more considered regulation.”

Martin Lowes, principal consultant at Aon Hewitt said: “The technical specification that has been delivered is a jumble of complex analysis lifted from Solvency II for insurers, combined with subjective assumptions for IORPs. In particular, the methods posed for the evaluation of employer covenants require significant revision. Rather than place a numerical value on sponsor covenant, we propose that the sponsor support is calculated as the balancing item required to make the holistic balance sheet balance. IORPs managers would then consider whether it is reasonable to rely on sponsors to the extent required and thus avoid having to justify what will look like an arbitrary formula for dealing with covenant.”

PLANSPONSOREurope Staff
editors@plansponsoreurope.com