CEA reiterates call for pension funds to fall under Solvency II

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EUROPE - Pension funds should be subject to the same regulations as insurance companies, with Solvency II serving as a “benchmark” for all financial institutions that offer retirement provision, the CEA has once again urged.

Following a Call for Advice (CfA) from the European Insurance and Occupational Pensions Authority (EIOPA) on the possibility of a new IORP Directive, the European insurance and reinsurance federation renewed its call for “same risks, same rules, same capital”.

The stance is at odds with numerous organisations in the pensions industry - both national and supranational - that believe forcing guidelines designed for insurance companies on pension funds would be the wrong approach for the European Commission to take.

Speaking to IPE earlier this week, the National Association of Pension Funds (NAPF) senior policy adviser James Walsh warned that Solvency II would force up the cost of maintaining defined benefit schemes in the UK and result in scheme closures.

“There have been plenty in recent years - there has been a dramatic shift to DC, and we have seen large numbers of schemes close,” he said. “We could only expect for that trend to be accelerated by these proposals.”

But the CEA argues that the shape of regulation should be independent from the vehicle offering pension provision - referencing the diverse approaches taken by pension funds across Europe - and should be based on the “risks those products present to the provider, members and beneficiaries”.

“As a result, members and beneficiaries’ protection shall neither depend on the legal form of the institution they are affiliated to nor on the supervisory regime,” it said.

However, the insurance federation did say that some concessions to the differing approach taken by pension funds should be made.

Referencing the Solvency II framework directive, it said: “These principles should serve as the basis for regulating all financial institutions providing occupational pension products, provided the economically significant characteristics of the different pension products or schemes are taken into account.

“Examples of specific occupational pension product characteristics that could be prudentially relevant include the use of sponsoring covenants, pension protection schemes or options to reduce benefit promises or payments.”

It reiterated that introducing these changes would allow for a “level paying field” between both the insurance industry and pension funds.

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