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EC unlikely to risk pensions closures with Solvency II

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  • EC unlikely to risk pensions closures with Solvency II

EUROPE - The European Commission has given its strongest indication yet Solvency II rules are unlikely to be applied to pension funds, as officials acknowledge heightened capital and asset allocation requirements on pensions funds could lead to the closure of defined benefit pension schemes.

Speaking in an address to the Insurance Institute of London, Charley McCreevy, commissioner for the internal markets and services directorate, said although the regulatory body CEIOPS is looking at solvency rules on pension funds, the European Commission will only apply insurance industry Solvency II rules to occupational pension funds if there is a clear case for doing so.

Moreover, McCreevy told his audience the EC does not want to implement additional rules which risk closing defined benefit pension schemes.

"I believe that further work is needed here before we can commit ourselves to any specific regime. Stakeholders will have an opportunity to provide us with their views. But a very strong business case would be required before we start shifting Solvency II rules to pension funds, and frankly, I would be surprised if there is such a case. I have no intention of sponsoring proposals that would risk closing down defined benefit pension schemes," he said.

It is not the first time McCreevy has suggested the EC was less than keen to apply Solvency II-type requirements - having stressed a similar opinion during a speech in November at the CEIOPS conference in Frankfurt.

 He noted in yesterday's speech the EC will only be able to make a firm decision, on whether pension funds should have tighter solvency requirements, after CEIOPS has presented its fact-finding exercise and once it better understands which exiting solvency rules apply - including those within the directive on Institutions for Occupational Retirement Provision (IORP) - to the area of pension funds.

That said, there has been increasing noise from interested parties across Europe suggesting occupational pension funding should be treated in the same way as insurance companies, in part because some parties see the increased reserve capital requirements on insurers offering pensions as being a competitive advantage for pension funds. (See earlier IPE story: No technical argument against Solvency II - supervisor)

Nigel Peaple, director of policy at the UK's National Association of Pensions Funds (NAPF), told IPE he is pleased to see McCreevy also believes no changes should be made to pensions funding rules under IORP.

"We are also pleased he understands there is unlikely to be a very strong case for looking at this. Our view is it is much too early to be thinking about revising the IORP rules, it has only been two and a half years," said Peaple.

"There is no sense of problems either in domestic and cross-border pensions. Pension schemes operate very differently in each country so a one-size-fits-all arrangement is not feasible. And insurance company pensions are not the same thing, they operate on different principles. Whereas the insurance company money must be available to pay out, with a company pension scheme you also have the sponsoring employer if there are any funding issues. So this development is very encouraging," he added.
 
Chris Verhaegen, secretary general of the European Federation for Retirement Provision (EFRP), also said she hopes McCreevy's latest comments will continue to stand in favour of pension funds, particularly as schemes in the UK and Ireland would be hardest hit by any increased capital requirement.

"We are very pleased that the Commissioner has repeated the message he already sent in Frankfurt in November at the CEIOPS conference and we are very pleased he is continuing on this plan. We don't see much happening on the field and hope the Commissioner will remain firm on this stance," said Verhaegen.

"We are also very pleased he recognises there is a danger [pension] schemes will be hurt and employers will be no longer willing to offer them [if Solvency II is also applied to pension funds]," she added.

Have Your Say: Jane Marshall, partner at law firm Macfarlanes, comments:

"Thank goodness for this common sense approach from Charley McCreevy.

"Companies which provide their employees with good pension arrangements deserve every help and encouragement. Pension schemes must be financed in a way which provides an acceptable balance between the need for member security and the business needs of the employer.

"If we want efficient business that can compete on the world stage,and we believe in good pension provision,then we must not keep moving the goal posts."

Have Your Say: Jane Beverley, principal at Punter Southall, comments:

"I am delighted to join the chorus of approval for Commissioner McCreevy's words to the Insurance Institute of London. Applying Solvency II (or any similar regime) to pensions would have the opposite effect to that intended.

"Protection comes at a price, and members of defined benefit pension schemes would not thank the EU if that price was the closure of their scheme."

What do you think of this development? If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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