Published by Nick Griggs on
Rowan Harris contributed to the writing of this blog post
After an impact study last year revealed that EIOPA’s proposed changes could have increased the reported deficit in UK pension schemes from £300bn to £450bn, the European Commission announced that solvency requirements would not be included in the current revision of the pensions directive.
However, EIOPA has continued with this work off its own bat. And now, notably absent from previous work, it is considering how the “holistic balance sheet” it proposes might be used by pensions regulators to set solvency and minimum funding requirements.
The latest consultation makes a variety of suggestions for a new framework. These range from:
EIOPA does at least recognise that the latter option would “seriously interfere” with pension provision in a number of states.
The new European Commission will focus on the proportionality of any proposal. (The current Commission has recently published a review of its achievements in “making EU law lighter, simpler and less costly”!). We believe that the benefits of EIOPA’s proposals – ostensibly improved security for members of pension schemes – will be strongly outweighed by the costs:
EIOPA will consult further on technical specifications for an impact study, due to take place in early 2015. Following this it will provide its advice to the European Commission which will decide whether or not to progress with solvency requirements.
This all comes at a time when EIOPA may turn to an industry levy to fund its work, rather than being funded from the EU budget and national contributions as at present. Financially stretched pension schemes are likely to resent having to fund EIOPA’s own-initiative work on such projects, particularly if the Commission chooses not to proceed.
The European Commission’s priority, rather than stifling existing pension provision, should be to encourage the growth of pensions and improve outcomes for members. An increasing proportion of members are in defined contribution schemes where adequacy of income is a real issue. Further, there are some member states where there is little current provision. This is the bigger picture. One blue-sky piece of the jigsaw won’t help.