Solvency II measures in IORP directive would hit Ireland hardest – Aon Hewitt
IRELAND - The introduction of Solvency II would have a greater impact on Irish defined benefit schemes than on funds in any other European country, Aon Hewitt has argued.
Speaking to IPE, Philip Shier, senior actuary at the consultancy's Dublin office, said that while significant attention had been paid to the impact of the IORP directive's solvency regulation on UK schemes - with industry experts estimated as much as £1trn (€1.2trn) in increased costs for sponsors - Irish funds would be left trying to draw additional capital from sponsors that "clearly" did not exist in the current environment.
He said that while the UK could argue that its 'debt upon the employer' legislation and Pension Protection Fund sufficiently addressed solvency capital requirements, Ireland had no such safeguards.
Commentators have argued that the absence of debt upon the employer legislation could lead to companies simply closing underfunded schemes to the detriment of members.
Shier, who sits on the European Insurance and Occupational Pensions Authority's stakeholder group, said the introduction of Solvency II and the need for increased capital buffers would lead to scheme closures.
"If there were to be any expectation of this type of legislation being introduced in the near future, more or less all of the Irish DB schemes would be closed down pretty quickly," he said.
Shier acknowledged that changes to the country's pension legislation, allowing for increased security for members, were necessary.
"There will probably need to be some further strengthening of security for Irish pensions - whether that be by employers being required to offer some kind of guarantee of future funding, or a insolvency protection scheme," he said.
He argued, however, that the introduction of a lifeboat scheme would be highly unlikely, unless the EU had mandated its launch.
He also said he expected sufficient resistance to Solvency II's introduction to "defer, if not completely defeat" that aspect of the new IORP directive - but he conceded that some kind of solvency regulation was likely.
"There probably will be some aspects of the Solvency II framework that will come in and that would be beneficial, without leading to significant increases to capital requirements people are talking about - because that politically won't fly," he said.