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Special Report

ESG: The metrics jigsaw


UK jibs at Spanish solvency proposal

A proposal by the Spanish delegation to the EU pensions working group to introduce a solvency test for pension funds could lead to billions of euros having to be injected into occupational schemes overnight. But the idea has come under fire from the UK government which claims it would deliver another blow to its already-beleaguered occupational pensions system.
The UK government says the proposals will force companies to inject cash immediately into their funds to cover any deficit shown by the new accounting principle, FRS17, which is already considered the main culprit for the recent closures of defined benefit schemes in the UK.
Industry insiders in the UK are furious that EU member states that don’t rely heavily on having their pension systems funded by investing in stock markets and other asset classes could be in a position to destroy the UK pensions model.
But Rhoslyn Roberts of the UK’s National Association of Pensions Funds says it all depends how the proposal is interpreted. “It’s just another set of regulations but nonetheless, it has come along at a rather inopportune time when there is a lot of debate about the future of DB schemes in the UK.”
Roberts says the UK system is pretty unique in the EU and doesn’t rely on 100% funding levels. “Other member are used to reporting 100% funding levels for their schemes and DB isn’t extensive outside the UK. What is important for the UK’s system is the flexibility that allows funds’ solvency levels to fluctuate from year to year because they are directly linked to the performance of the underlying asset class. The UK needs to retain that element of flexibility and there needs to be greater understanding between member states.”
The UK is supposedly the only EU member opposed to the move and, acting unilaterally, it is highly unlikely to get the proposal blocked.
The directive has already come under fire from the UK, Ireland and Netherlands over its proposals to restrict pension funds’ investments in private equity, real estate and other alternatives investment classes. The Spanish, who currently hold the EU presidency, are keen to get the directive passed by June, when their tenure ends.

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