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UK pensions industry blasts 'holistic balance sheet' approach

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  • UK pensions industry blasts 'holistic balance sheet' approach

EUROPE - The UK pensions industry continues to oppose the 'holistic balance sheet' (HBS) approach within the revised IORP Directive and has called on stakeholders to make their voices heard in the consultation paper launched by the European Insurance and Occupational Pensions Authority (EIOPA) last week. 

The National Association of Pension Funds (NAPF) lamented the fact that HBS measures even remained "on the table".

Joanne Segars, chief executive, said: "We support the European Commission's objective of achieving secure, sustainable and adequate pensions.

"However, we remain concerned that EIOPA's proposals will undermine these principles. We are therefore very disappointed that the holistic balance sheet is still on the table.

"These rules would damage final salary pensions in the UK and elsewhere across Europe."

According to the NAPF 's calculations, HBS rules could cost UK pension funds "at least" an extra £300bn (€373bn).

It said companies would either divert money from business investment and job creation to pay for these pensions, or simply decide to stop offering them.
 
Aon Hewitt said EIOPA's quantitative impact study (QIS) consultation had "missed the point".  

Kevin Wesbroom, managing principal at the consultancy, said: "The assessment needed to examine the real issues for UK pension plans and the impact on their sponsors' ability to invest in their business for the future.

"Instead, we have a technical consultation on how a system could be made to work, but with no clear view of what that system will be used for.

"It seems EIOPA wants each member country to help it to finalise the technical design of a large complex structure without saying how the structure will be used."

Punter Southall said EIOPA's plans for the QIS would do nothing to help schemes understand the real impact of the HBS.

Jane Beverley, head of research at the consultancy, said: "What is not made clear is what will be done with the results of all this number-crunching. How will the holistic balance sheet be used in practice?

"If it does not balance, will employers have to pay extra contributions? And if so, over what timeframe? Without knowing the answers to these questions, pension schemes will not be able to assess what the impact is for them."

Beverley also criticised EIOPA's technical approach to the consultation paper, which she dismissed as a "cut and paste" exercise from the Solvency II QIS.

"Most pension schemes - and even many advisers - will find it difficult if not impossible to understand how the complex formulae derived from insurance relate to the real world of pension scheme funding with which they are familiar," she said.

In light of these concerns, the UK Pensions Regulator (TPR) encouraged all stakeholders to respond fully to the consultation.

It also stressed that, if the European Commission ultimately took EIOPA's advice on the use of a HBS approach, it would seek to ensure it was implemented in a "flexible" way.

TPR also pointed out that the Commission planned to propose revisions to the IORP Directive next summer.

"Any new proposal from the Commission would be unlikely to come into effect before 2017 and could be many years later," it added.

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