EUROPE - Pension insolvency funds and employer covenants should be accepted as a substitute for new capital requirements being proposed by the European Commission, the European Insurance and Occupational Pensions Authority (EIOPA) has been told.

In submissions on proposed changes to the IORP directive, the €11bn Pensioenfonds Vervoer, for employees in the Dutch transport sector, said schemes covered by an employer covenant should not see that covenant as a "calculated" asset - one that was subject to evaluation - but rather as a "flexible" asset for means of compensation.

"Regardless of the definition of capital requirements, Component 7 [an employer covenant or pension insolvency scheme] has to be regarded as an asset to fulfill any solvency capital requirement the IORP might face," the Dutch scheme argued in its submission.

"In any event, Component 7 has to be qualified as an equivalent to financial assets."

The Dutch fund's views were shared by BT Pension Scheme Management (BTPSM), asset manager of the scheme for the formerly state-owned telecoms provider.

While BTPSM did not agree with the introduction of a holistic balance sheet (HBS) approach, it argued that, if launched, it should include a way to account for the existence of the UK's Pension Protection Fund.

"We regard the benefit of pension protection arrangements as significant in terms of the protection of consumers and believe that, if the balance sheet approach is used, this positive benefit would best be recognised through their inclusion as an asset on the balance sheet of those IORPs that enjoy the benefit of such structures," it argued.

Its view was shared by one of the UK's largest pension funds, the Universities Superannuation Scheme.

While again expressing opposition to HBS, it agreed with BTPMS that, if introduced, the existence of both the PPF and the Pensions Regulator to monitor governance arrangements meant there was "no need" for additional solvency capital requirements to be imposed.

The European Association of Paritarian Institutions, representing social partners on a European level, also argued in favour of the inclusion any security measures within the holistic approach.

However, it questioned how best to value the existence of such national insolvency schemes and raised concerns about the "complexity and the subjectivity" of any valuation.

"The question if they should reduce sponsors' insolvency risk or be treated in the holistic approach must be judged on national level due to the construction of the pension protection scheme," it said.

"If the scheme protects the fund itself, it has to be treated as a separate asset. If it protects only sponsors, it has to be taken into account by reducing sponsors' insolvency risk."

Submissions by the UK's Treasury previously criticised the "fundamental" lack of detail on how employer covenants and the PPF would be accounted for under HBS, while the German government highlighted the proven strength of its own rescue fund, the PSV.

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