EUROPE - Representatives from the European pension fund industry have poured cold water over the possible application of Solvency II rules to pension schemes mooted earlier this year in the EU Green Paper.
Speaking at the Conference on the Green Paper on Pensions in Brussels, Steve Webb, UK minister for pensions, said the UK saw "no compelling evidence" to suggest the Solvency II approach was appropriate to occupational pension funds.
"The current European requirements on prudential investments and funding strategies are adequate to protect members' benefits," he said.
"In the UK, employer-sponsored occupational pension schemes and insurance companies are totally dissimilar as institutions. Occupational schemes don't seek custom on the open market - they provide employee benefits only for a specific employer.
"That employer must stand behind the scheme and honour the promises made to the beneficiaries. For defined benefit (DB) schemes, this means effectively underwriting longevity, investment and inflation risk."
He said he was concerned the application of a Solvency II-type regime to DB schemes could increase employer liabilities substantially - "even for schemes that are judged to be otherwise adequately funded" - by leading many employers to re-evaluate their commitment to the scheme.
"Alternatively," he added, "it could result in a reduction of benefits."
Martin van Rijn, chief executive at PGGM - the former investment arm of Dutch healthcare scheme PFZW - echoed many of his sentiments.
"I consider transparency to be an important part of pension safety," he said. "When pension schemes face future challenges with regard to demography and financial volatility, we can react in different ways.
"We could introduce more adaptations for economic cycles, we could introduce automatic adaptation to aging, we could strengthen governance and risk management or we could increase solvency rules.
"But we should be very careful about that. It would lead to rising costs and lower pension results, and it's questionable that it would lead to higher trust."
Paul de Krom, the new Dutch minister of social affairs and labour, argued that contributions could soar by as much as 30% if Solvency II rules were applied to pension schemes.
"A private insurer cannot be compared to a pension fund," he said.
"Once a pension fund is established, participation is mandatory, and this makes its prospects fundamentally different from private insurers.
"If market rules were fully applied to pension funds, this could easily lead to a 20-30% rise in pension contributions.
As far as the Netherlands was concerned, he said, this would be "unacceptable".
"The readiness of employers and employees to take part in pension schemes would be undermined, and this would lead to reduction of pension scheme participation and, subsequently, lower income for pensions," he said.
However, Gabriel Bernardino, chairman at CEIOPS, said pension funds would do well not dismiss Solvency II out of hand.
"Solvency II is something that is very important for pension plans to look at," he said. "We shouldn't take a top-down approach and apply it blindly - we should go from the bottom up, look at what we have under the pension plans and determine what are the most sound principles that can be applied.
"At the end of the day, I believe most of these principles can be applied. After all, we didn't build Solvency II in six months - we've been working on this for many, many years."