The European Commission (EC) has postponed indefinitely its highly-controversial proposals to apply solvency rules to pension schemes under the IORP directive.
Speaking at a conference in the Netherlands today, European Commissioner for Internal Market and Services Michel Barnier said the EC was postponing the requirement for pension schemes to quantify their assets and liabilities consistently with insurance companies, using what they referred to as a ‘holistic balance sheet’ under Solvency II.
Speaking following the results of the Quantitative Impact Study (QIS) published by the European Insurance and Occupational Pension Authority (EIOPA) last month, Barnier said due to the large diversity in pension systems in Europe it was impossible to develop rules that fit all systems in the short term and more research is needed.
He added the solvency rules should be an improvement for the pensions sector rather than a punishment and therefore the European Commission will only propose rules for transparency and governance in the new IORP directive due to be published in the autumn.
The European Commission said: “[We] will present a directive to improve the governance and transparency of occupational pension funds in the autumn of 2013. At this stage, and as long as we do not have comprehensive data and Solvency II is not in force, the proposal for a directive will not cover the issue of pension funds’ solvency. In light of the varied situation in member states regarding retirement products and pension funds, it is necessary to continue technical work on the issue of solvency.”
It is not certain how long the Solvency-rules will be postponed for, but Barnier said he expects the quantitative rules will be a task for his successor, who will take office in November 2014.
The National Association of Pension Funds (NAPF) welcomed the postponement of the proposals, which it claimed could have increase UK pension scheme deficits by 50%.
NAPF chief executive Joanne Segars said: “We are very pleased the European Commission has taken this step. We think this is the right approach and are fully committed to work with the European Commission to find good rules on governance and disclosure.”
But LCP partner Jonathan Camfield warned “we may not be out of the woods yet”.
He said: “The EC has made it clear they are pushing ahead with other aspects of their proposals in the areas of governance and transparency. It is reasonable to assume that this includes the possibility of requiring pension schemes and sponsoring companies to disclose new financial information that is prepared in line with insurance company style regulations.
“Preparing this information would be an unwelcome additional burden on UK pension schemes. But perhaps more importantly, it runs the risk of becoming a measuring stick for pension risk. For example ratings agencies, credit analysts, lending banks and investors might start using the numbers to assess pension risk for UK companies. This might be fine if the required figures were fit for purpose, but from everything we have seen so far, we strongly suspect they won’t be.”
In April, Andrew Bailey, the head of the Prudential Regulation Authority (PRA), claimed Solvency II will be “vastly expensive” and do little to make the insurance industry safer.
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