The European Commission has stood by work on the controversial holistic balance sheet (HBS) undertaken by the European Insurance and Occupational Pensions Authority (EIOPA), arguing that future regulation should balance the pension sector’s financial stability with the Continent’s growth prospects.

Addressing the National Association of Pension Funds (NAPF) Investment Conference in Edinburgh, Jonathan Hill, commissioner for Financial Stability, Financial Services and Capital Markets Union, said he was aware of concern among pension funds around EIOPA’s independent work on potential solvency requirements.

The Frankfurt-based regulator is currently working on the HBS design expected to take shape in either solvency requirements, minimum funding level or a risk management tool, with final proposals scheduled for next year.

However, Hill said he would not pre-judge the outcome of the Commission’s response.

“I will examine [the HBS] on its merits, bearing in mind our goal of financial stability but also the likely impact on the wider economy, including jobs and growth,” Hill said.

Responding to accusations EIOPA was running its own agenda rather than falling in line with Commission plans, Hill said the authority’s job was to provide technical advice, and that it did this thoroughly.

“It is important EIOPA is independent, but, ultimately, it operates within a political system, and the Commission will exercise that political judgment,” he said.

“The buck stops with me. [This is] about trade-offs and where you strike the balance on the spectrum.”

Referring to a focus on risk reduction over growth since the 2008 financial crisis, Hill said: “When you are in the middle of a huge financial crisis, people, regulators and politicians are going to strike a balance on one end of the spectrum than another.

“That thought is one I will have in mind when I go about my job and think about regulations, and make the difficult judgments about where to come down. I will look at regulation through that prism.”

The Commissioner did, however, announce a review of the European Markets Infrastructure Regulation (EMIR), and the requirement for pension funds to clear over-the-counter derivatives centrally with counterparties.

Pension funds have been granted exemption from the rules until August 2015, with a two-year extension currently being reviewed by the Commission.

“I know you are concerned EMIR will increase the cost of hedging through the requirement of the posting of an initial margin and consequently lead to a reduction in equity investments,” Hill said.

“While it is too early to take a decision, I will be launching a review of the EMIR legislation shortly, which will provide an opportunity for reflection.”

Hill added that he recognised pension funds did not generally hold cash and that the requirement to clear centrally and post for margin calls could ultimately reduce pensioner incomes.

“No possible alternative solutions for the posting of non-cash assets by pension schemes have yet been found.”

Read Jonathan Williams’ analysis of the industry reaction to EIOPA’s holistic balance sheet proposals