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IPE special report May 2018

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New Irish pension funding standard 'in the area' of Solvency II, says IAPF

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  • New Irish pension funding standard 'in the area' of Solvency II, says IAPF

IRELAND - New funding standards announced by the Irish government appear to emulate proposals for Solvency II, industry experts have admitted.

Speaking the day after minister for social protection Joan Burton announced that the standard would be reintroduced imminently - with a revised standard including increased capital buffers phased in over a decade - the IAPF's director of policy Jerry Moriarty conceded that the Pensions Board would have been "very aware" of the discussions surrounding Solvency II when drawing up their proposals.

He said that, while Burton had indicated schemes would be given a three-year window to reach full funding, this was likely in reference to the minimum time granted for recovery by the regulator.

"My understanding is that the ability to apply for an extension will still be in place," Moriarty told IPE.

Asked if the new funding standard was an attempt to prepare Ireland for the potential introduction of Solvency II, he said he was uncertain if that had been the regulator's motivation, but added that the issue of Solvency II was a "big worry" at the moment.

Referring to proposals put out to consultation earlier this year that suggested a capital buffer capable of absorbing a 20% fall in equity value, as well as a 1% drop in bond yields and a 0.5% inflation increase, he admitted it was likely conceived with the implementation of Solvency II through the IORP directive in mind.

"I would imagine, in terms with coming up with the options, the Pensions Board would have been very aware of the Solvency II-type discussions," Moriarty said, adding that proposals were "certainly in that area".

He said Solvency guidelines were a distinct possibility and referenced the European Insurance and Occupational Pensions Authority's consultation on the matter, launched earlier this week.

"The Call for Advice certainly seems to be heading in that direction, and that's something we'll be working on at European Federation for Retirement Provision level, as well as national level, to highlight what that would mean to schemes," he said.

Martin Haugh, partner at LCP Ireland, agreed the potential impact of solvency was certainly on regulator's minds, admitting that was likely behind current proposals.

"The regulator envisages a Solvency II-type regime being imposed at some point in the future - this should take care of it, or go a long way toward satisfying those requirements," he told IPE.

Haugh admitted that meeting a base solvency level would prove challenging for some scheme sponsors, already burdened by deficits.

"Adding to that amount will only make things more difficult," he said. "The requirement for a risk reserve - regardless of lead-in time - will lead to a number of employers ceasing their defined benefit schemes where previously they were looking at putting deficit solutions in place."

While Moriarty said the proposed 11-year period over which the new standards would be introduced would be "very welcome", Haugh said the lack of debt upon the employer legislation could lead to schemes being wound up instead.

"Companies will reconsider whether it's viable to continue providing a DB scheme if they are going to be required to hold some kind of risk reserve," he said, while Moriarty conceded this was always a risk when raising funding standards within a voluntary system.

The IAPF's head of policy said: "That's where you have got to have the balance between having an appropriate level of security, but also try to do it in a way that schemes actually continue."

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