Real estate industry needs to respond to consultation on new pensions directive

The European Insurance and Occupational Pensions Authority (EIOPA) last week (Friday 15 June) launched a consultation on quantifying the impact of their proposed new directive for occupational pensions (the IORP Directive). The results of this impact study will help determine how much extra capital pensions schemes will be required to hold against the risk of unexpected events. The consultation period will run until 31 July.

Alistair Reason, real estate specialist at PwC who advises investment management businesses, said:

“EIOPA is also the regulator responsible for insurance companies so it should come as little surprise that there are many similarities between the Solvency II rules for insurance companies and the IORP provisions that will apply to pension schemes. Of concern to the real estate industry is that the Solvency Capital Requirement (SCR) in this Quantitative Impact Study (QIS) mirrors that proposed for insurers under Solvency II. In particular, the property shock provisions used in Solvency II that assume a 25% fall in real estate values are replicated in the new proposals. The application of this level of market shock would be as unappealing to defined benefit pension schemes as it is to life insurance companies. Both groups are major investors in real estate as an asset class.”

“It is important that the real estate industry responds to this consultation document, but also that it continues to make its voice heard over areas of uncertainty in Solvency II such as the treatment of real estate lending. The regulator has made it clear that the same calibration is intended to be used in both. Any deficiencies in Solvency II that remain uncorrected are therefore likely to also apply to pension schemes.”