Several responses to the European Insurance and Occupational Pensions Authority’s (EIOPA) second consultation on the European Commission’s call for advice on the review of the IORP Directive have pointed out that the unique characteristics of pensions should be taken into account when making any changes, particularly with regards to Solvency II.

KPMG stressed the importance of assessing the impact of incorporating the requirements of Solvency II into the pensions directive. Such assessments should consider macro-economic impacts as well as consequences for individual schemes and employers.

The firm said that if Solvency II were to be mapped across to UK pension schemes, without any transitional measures or significant adaptation, it could require a shift in assets from UK companies to their DB pension schemes of well over £1,000bn.

Andrew Cawley, head of pensions at KPMG in the UK, said: “There are very important political decisions to be taken about European pension scheme regulation and supervision before much of the detail in this consultation should be considered properly. We are pleased that the UK government is taking this seriously and engaging in Europe on what could have enormous implications for UK companies, pension schemes, and indeed the economy as a whole.”

“Pension schemes, set up voluntarily by employers, are not insurance companies and so trying to shoehorn the complicated and onerous requirements of Solvency II into pensions regulation is not appropriate.”

Nest chair Lawrence Churchill, CBE, added that EIOPA’s consultation could lead to a number of requirements that mean increased costs for defined contribution schemes such as Nest, including the potential requirement to hold additional capital against operational risk, under the Solvency II regulation.

“In our response, we urge EIOPA to carry out a full impact assessment of the proposals. More generally, Nest believes that any new European regulatory proposals should take account of the diversity of pension provision in Europe and avoid prescriptive regulations that would inhibit this diversity.”

In its response, Barnett Waddingham focused on UK DB occupational pension schemes. Partner in the firm’s corporate consulting team Andrew Vaughan said: “Overall, we at Barnett Waddingham are concerned that the proposals will impact adversely on the UK private sector pension system and, contrary to the EU’s aim, could lead to reduced security and reduced retirement income for many.

“We do not support the “holistic balance sheet” proposal laid out in the consultation and believe it could have negative financial consequences for many financially strong UK employers. Were it to be implemented, then this would lead to future benefit accrual being reduced in many more cases and many more defined benefit schemes being closed completely to future accrual, ultimately leading to potentially lower pension provision at retirement for the current workforce.”

He added that there are fundamental differences between insurance companies and IORPs, and that DB schemes were not designed to be funded to insurance company levels and are not run on a competitive or profit-making basis.

“The UK already has several pension scheme funding-based triggers in place set by the UK pensions regulator for monitoring schemes. Increased governance and reporting requirements would only add to the costs to UK employers on running defined benefit schemes.”

Share Story: