Failed Pensions Directive?

The Pensions Directive has failed and should be replaced by a new version as quickly as possible, according to a panel discussion reported by IPE last week. The reasoning is that at this point, there are only five new cross border pension schemes in operation.

While I agree that the market response to the new opportunities offered by the Pensions Directive has been slow to date, talk of a "new" pensions directive is counter-productive in my view. The retirement industry has an unusually long time horizon, it is therefore not prone to hasty moves, especially not in the presence of regulatory uncertainty. As the CEIOPS Initial review of key aspects of the implementation of the IORP directive showed in April, there are important aspects that require legislative attention, thus the transposition of the pioneering project that is the Pensions Directive, while formally finished, is not complete. 

The Pensions Directive can be improved, but improvements should be approached in a gradual manner, as it is highly unlikely that IORP II could bring pan-European harmonisation of retirement systems. Hence impediments to cross-border schemes, such as taxation issues, need to be removed one by one. The attractiveness of cross-border schemes should be increased by expanding the scope of the Directive's applicability. Surprisingly, this is not part of CEIOPS' conclusions, but as described earlier, an important segment of several Central & Eastern European countries' mandatory occupational retirement schemes lies outside of the Directive's scope. This unfortunate omission is due to the fact that these countries did have no part in the preparation of the Directive prior to their accession to the EU. 

Pensions Directive Review

As a precursor to the EU Commission review expected later this year, CEIOPS has published its own Initial review of key aspects of the implementation of the IORP directive. The main conclusions (from the press release) are:

there is considerable diversity in the way some key aspects of the IORP Directive have been interpreted and implemented;

there is little evidence of major issues arising from these differences;

given early days and limited experience of the Directive's implementation in some areas, it would be premature to recommend changes to the Directive.

More to follow ...

Don't miss!

On Thursday, 27 March the IASB is going to release its long expected discussion paper on post employment benefits. Don't miss IASB member Steven Cooper's live web presentation introducing the discussion paper from 1200h to 1230h (UTC). You can register for the event here.

It may be interesting to compare the IASB's position to the previously released paper of the UK ASB on the same topic. My guess is that the ASB's position will prove to be more aggressive, especially with regards to the highly controversial use of risk free interest rates to discount pension plan liabilities.

XBRL Skeptics (sic) Abound?

In evaluating the viability of any innovation, it is crucial to keep an open mind (some call it paranoia) about its limitations and critical issues. From that point of view, CFO.com's piece about XBRL sceptics is comforting reading. The doubts offered there are really quite immaterial: The luddite accountant's view that financial analysis is an art rather than a science, for the exercise of which he needs the entire statement is answered crisply: you can have that, too. The reason why XBRL will hardly take off without regulation is easy to explain: It will only become really useful once all preparers issue their information in that standard, and that will not happen spontaneously. Without it being useful, preparers have an easy case to make against going to the effort. Classic chicken and egg. The other points raised are transient in nature. 

What I am more concerned about is the need for a consistent evolution of XBRL taxonomies within a coherent architecture, and the restrained use of X, i.e. eXtensibility, by preparers, lest XBRL documents become too complex to be useful. That is where scepticism is appropriate and healthy - but whether it is justified we will only be able to see further down the road.

Revised SWX Corporate Governance

The self-regulated Swiss Stock Exchange SWX has issued a revised commentary re Corporate Governance Directive that is binding for all companies listed on SWX. The most important changes are:

The comply or explain rule has been extended to contain a substantiated explanation of why the conflict of interest between the public interest in disclosure and the secrecy interest has been decided for the benefit of the latter. This explanation requirement weakens this important option substantially.

Principles and Elements of compensation or share-ownership programmes are explained and substantiated to make management compensation more transparent.