What New Cost is Being Heaped on European Investors?

Towers Watson has warned that pension and insurance investors will be asked to fund the running costs of Europe’s regulator under new plans unveiled by EIOPA.

(November 4, 2013) — Pension and insurance investors are to face yet another expense: the European body of pension supervisors wants to push through a new fee to pay for its future operations.

Under plans being considered by the European Parliament, the European Parliament’s Committee on Economic and Monetary Affairs has recommended granting the European Insurance and Occupational Pensions Authority (EIOPA) an independent budget, paid for by “market participants”.

“‘Market participants’ is code for pension schemes and insurance companies, while ‘the Union budget’ means taxpayers,” warned Dave Roberts, a senior consultant at Towers Watson.

“In the case of defined benefit schemes, additional costs would have to be met by the employers who are responsible for ensuring that the scheme has enough money left to pay the benefits that are due. In most defined contribution schemes, the cost would ultimately come out of pension savers’ retirement pots.”

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While the sums involved are unlikely to be large, it flies in the face of several government’s pledges to make defined benefit schemes less burdensome for employers, Roberts continued. It also defies plans to cap charges in defined contribution schemes, he added.

The push for an industry-funded regulator has been on the cards for some time. Gabriel Bernardino, chairman of EIOPA, called for such a system in May this year, asking for what he called “partial financing” through a levy on the industry.

EIOPA’s budget for this year is €18.8 million, 60% of which currently comes from national supervisors (and so, indirectly, from the pension schemes and financial service companies who pay levies to them).

“An expanding workload for EIOPA is likely to mean an expanding budget, and ECON’s proposals would make it easier to get pension schemes and insurers to pay for this,” Roberts continued.

“Even if the idea was only to cut out the middlemen and make pension schemes pay EIOPA directly, it would still give a European regulator a direct claim on pension fund assets for the first time and open the door to higher payments in future.”