No arbitrage in prudential supervision of pensions possible in Europe!

Pension promise remains unchanged and is governed by home member states' social and labour law

Recently there was some discussion on the possible move of the two Dutch Aon pension plans to a cross-border IORP with Belgium as host country. Many concerns were voiced, but also support was given. As advisor to the boards of the two Dutch Aon IORPs I feel that I should hold back in offering my own opinion. Nevertheless I would like to make a few comments. Some authors warned for supervisory arbitrage. It is argued that supervision in Belgium is less stringent. Although my opinion is that this is not at all the case, this discussion is not getting to the point. Any pension promise made in a member state should comply with the social and labour law in this members state indifferent whether the IORP is residing in the same member state (i.e. The Netherlands) or in another home member state (i.e. Belgium). My interpretation of this is that each beneficiary in the plan should, everything else being equal, receive similar pension payments on his or her bank account. That is the starting point of the EU Pension Directive. So even if the Belgium supervision would be less stringent, the company that made the pension promise under Dutch social and labour law has the legal obligation to provide for the same or at least similar pension payments to all of the participants of the scheme. In my view similar pension payments mean that not only the expected amount is similar but also the risk of receiving less or more. I think it also implies that the distribution over the generations of beneficiaries is similar.

So the pension promise is the starting point and does not change in case the execution is moved to a cross-border IORP. I regard it the duty of all of the advisers in such a process and particularly the actuaries to look after this very important starting point of the European IORP Directive. This will ensure that no participant will lose out and that in this respect no supervisory arbitrage can take place.

Leave a Reply

  • (will not be published)