Norwegian pension fund transfer window still open. Just.
LinkedIn article June 24th 2019
The Ministry of Finance has today sent out on hearing a proposal for Norwegian implementation of the IORP II directive (also known as the pension fund directive).
The directive does not specify solvency requirements for pension funds, but leaves this to national implementation. Norway has, alone in the EU / EEA, already chosen to apply insurance company Solvency II rules to pension funds. As a result, Norwegian pension funds in general face considerably higher solvency capital requirements than their EU counterparts. Additionally, Solvency II is toxic for long term asset allocation and utterly inappropriate for pensions, but that is a different discussion.
Under the proposed rules, Norwegian pension funds will not only be required to have capital as if they were insurance companies. They will also have to be managed as if they were insurers. The will requirements and regulations as they apply to administration, "three lines of defense" and independent control and risk management functions, will pretty much the same as for insurance companies. The complexity (and presumably costs) of maintaining single sponsor and national pension funds will then increase considerably http://www.corum.no/november-22nd-2018-pension-fund-board-responsibilities.html . This part of the directive has already implemented in the EU, and as a result there is a clear trend towards consolidation and other efforts to achieve efficiencies of scale.
Cross-border offerings under EU Freedom of Services principles are the normal state of affairs for banking, insurance, brokerage and investment management. The creation of a pan-European financial services market is widely seen as having been a great success, for customers and providers alike. The exception has been occupational pensions, where a cross border market has been very slow to take off. One important purpose of the IORP II directive is exactly to stimulate the establishment of cross border pension funds and pension fund services, allowing for scale and efficiencies.
At the moment, Norwegian sponsors of occupational pension schemes enjoy full freedom to transfer the pension plans to wherever they choose, including to another EU / EEA jurisdiction. Pension scheme members have a right to be informed and to be heard, but the power to make transfer decisions rests exclusively with the sponsor / employer. Given the increased cost and complexity of operating single sponsor Norwegian funds under the proposed new rules, on top of the drastically increased solvency requirements and the restrictions on efficient long term asset allocation that follows from the Solvency II directive , cross border transfers may appear very attractive. However, sponsors should take notice that the proposal may considerably restrict the freedom of sponsors to transfer pension schemes.
Under the terms of the directive, pension plan members should have a say about transfers, but it is left to each country to determine exactly how that should be done. The Norwegian proposal out today could in practice remove the freedom of sponsors to transfer pension schemes. And that is hardly the point of the directive. The proposal is that two thirds of pension scheme participants / beneficiaries have to approve a transfer. That makes no sense as anything other than a full closedown of transfers and competition; just getting two thirds of members to take an interest would appear completely unrealistic.
But options are still open. The hearing may change the proposal, obviously, and as the hearing does not close before the end of October, there is still time to move. In the parlance of professional soccer, the transfer window is open.
And just for the sake of transparency; yes, we do offer a cross border and multi-sponsor solution!
LinkedIn article June 24th 2019
The Ministry of Finance has today sent out on hearing a proposal for Norwegian implementation of the IORP II directive (also known as the pension fund directive).
The directive does not specify solvency requirements for pension funds, but leaves this to national implementation. Norway has, alone in the EU / EEA, already chosen to apply insurance company Solvency II rules to pension funds. As a result, Norwegian pension funds in general face considerably higher solvency capital requirements than their EU counterparts. Additionally, Solvency II is toxic for long term asset allocation and utterly inappropriate for pensions, but that is a different discussion.
Under the proposed rules, Norwegian pension funds will not only be required to have capital as if they were insurance companies. They will also have to be managed as if they were insurers. The will requirements and regulations as they apply to administration, "three lines of defense" and independent control and risk management functions, will pretty much the same as for insurance companies. The complexity (and presumably costs) of maintaining single sponsor and national pension funds will then increase considerably http://www.corum.no/november-22nd-2018-pension-fund-board-responsibilities.html . This part of the directive has already implemented in the EU, and as a result there is a clear trend towards consolidation and other efforts to achieve efficiencies of scale.
Cross-border offerings under EU Freedom of Services principles are the normal state of affairs for banking, insurance, brokerage and investment management. The creation of a pan-European financial services market is widely seen as having been a great success, for customers and providers alike. The exception has been occupational pensions, where a cross border market has been very slow to take off. One important purpose of the IORP II directive is exactly to stimulate the establishment of cross border pension funds and pension fund services, allowing for scale and efficiencies.
At the moment, Norwegian sponsors of occupational pension schemes enjoy full freedom to transfer the pension plans to wherever they choose, including to another EU / EEA jurisdiction. Pension scheme members have a right to be informed and to be heard, but the power to make transfer decisions rests exclusively with the sponsor / employer. Given the increased cost and complexity of operating single sponsor Norwegian funds under the proposed new rules, on top of the drastically increased solvency requirements and the restrictions on efficient long term asset allocation that follows from the Solvency II directive , cross border transfers may appear very attractive. However, sponsors should take notice that the proposal may considerably restrict the freedom of sponsors to transfer pension schemes.
Under the terms of the directive, pension plan members should have a say about transfers, but it is left to each country to determine exactly how that should be done. The Norwegian proposal out today could in practice remove the freedom of sponsors to transfer pension schemes. And that is hardly the point of the directive. The proposal is that two thirds of pension scheme participants / beneficiaries have to approve a transfer. That makes no sense as anything other than a full closedown of transfers and competition; just getting two thirds of members to take an interest would appear completely unrealistic.
But options are still open. The hearing may change the proposal, obviously, and as the hearing does not close before the end of October, there is still time to move. In the parlance of professional soccer, the transfer window is open.
And just for the sake of transparency; yes, we do offer a cross border and multi-sponsor solution!