EC to look at solvency rules on pensions
EUROPE - The European Commission is to conduct an impact assessment of solvency rules for EU pension funds before it responds to last year's consultation on the topic and a public hearing that was held in Brussels today.
A response, which is unlikely to be a full proposal, is unlikely before this autumn, according to Karel van Hulle, head of the insurance and pensions unit of the directorate general for internal market and services of the European Commission.
"I can assure you that any measure of policy provision...will be accompanied with an impact assessment," van Hulle said.
However, the Commission's likely take on EU solvency rules for pension funds remains unclear. "On the substance of the issue...I think it is important we keep the objective in mind... the safeguards in the system [are] ultimately of crucial importance in this discussion," van Hulle said at the public hearing.
"Whether we are going to extend Solvency II to pension funds or not, whatever initiative is ultimately taken will have to take account of that specificity [safeguards in the system]. Indeed, pension funds are...some type of financial institution but we do have to realise that they also play an important role in financial stability and so will remain on the target of concern," he continued.
Despite an emerging, although still tentative, consensus that Solvency II is not appropriate in its entirety, there is still disagreement on which aspects might be appropriate, and whether harmonisation, in full or in part, is necessary. The 2002 IORP pensions Directive references Solvency I framework, which is due to be replaced on 31 October, 2012.
"Is it fair that for the insurance industry we have a modern framework and for the pensions industry we have an old framework? These are the facts we have to look at," van Hulle asked at today's public meeting.
However, the hearing largely provided a forum for the rehearsal of some already entrenched views.
Michaela Koller, director general of the European Insurance and Reinsurance Federation (CEA), said: "We are talking about the provision of pension products and the extent to whether IORPS and insurance provide the same product they should be treated the same - same product, same risk, same rules." She pointed out the insurance industry's leading position risk modelling and assessment: "We do not see a reason in principle why other sectors should not be going down the same road."
"IORPS and insurance undertakings are not operating on the same playing field or market," countered Chris Verhaegen, secretary general of the European Federation for Retirement Provision. "It is clear that IORPs are structured and operate differently from insurance undertakings," Verhaegen said. "IORPS are financial institutions with a social purpose."
She added: "The question would be, whether applying different rules to the institutions would promote market failure or favour inefficiency...I do not think the case has been made for either."
Wil Beckers, director of DSM Pension Services in the Netherlands, also remarked: "The current financial crisis has cast doubt on some elements of Solvency II, such as the mark-to-market principle and pro-cyclical funding. No case has been made that harmonisation is necessary to protect members' interests."
Maarten Camps, director general at the Dutch ministry of social affairs and employment suggested some aspects of Solvency II might be suitable for incorporation into a pensions framework - such as the forward-looking risk basis and the market basis for assessments of assets and liabilities.
Philip Wynn Owen, director general of strategy, information and pensions at the UK's department for work and pensions, reiterated his government's position against harmonisation with Solvency II.
"There seems little sense in suggesting changes to the current regime." he said, pointing out that some countries, like the UK, have a pensions guarantee fund in place.
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