16 February 2012

FN: Deluge of opposition greets EU pensions proposals

The European Insurance and Occupational Pensions Authority, or EIOPA, has recommended new funding rules that would treat pension assets and liabilities similarly to those of insurance companies, which are governed by a separate piece of EU regulation called Solvency II. The UK's National Association of Pension Funds said a Solvency II-style approach for pensions could force UK companies to bolster their schemes with a further £300 billion, on top of the £1 trillion in assets already in the funds.

Last year, EIOPA, one of the EU's three new financial "super-regulators", was asked by the European Commission, the union's executive body, to draw up a set of recommendations for pensions regulation. This advice was published yesterday, and could be the first step towards a new European Directive in the area. EIOPA asked the industry for comments before handing over its advice - and the 170 responses show the strength of feeling from industry. EIOPA's nine previous consultations, throughout 2011 and 2010, attracted an average of just 12.66 responses each.

The reaction from the UK was one of disappointment and alarm. Jim Bligh, head of labour market and pensions policy at the Confederation of British Industry, said businesses were "seriously concerned". But there was also a measure of relief that EIOPA had at least insisted that an "impact assessment" be run if the Commission wanted to press ahead with the reform.

Dave Roberts, a senior consultant at pensions advisers Towers Watson, said: "EIOPA has taken a firm line, going as far as to say that its advice on new funding rules is 'conditional' on the outcome of an impact assessment. So although the Commission has the green light to proceed, there is a potential roadblock ahead." He added: "The impact assessment is expected to be delivered in the third quarter of this year. If the Commission is to take this seriously, its desired timescale for delivering a draft Directive - by the end of 2012 - should be reviewed."

Deadlines were also on the mind of EIOPA's "stakeholder group", a consultative body of industry professionals that the regulator asks for advice. It also gave an opinion yesterday: "The stakeholders and EIOPA cannot deliver thorough and comprehensive input to the process due to the inadequate time scale".

EIOPA had sought to mollify pension fund fears from the UK, Netherlands and elsewhere by stressing its proposed funding rules are not exactly the same as Solvency II, and will form part of a new approach known as the "Holistic Balance Sheet", or HBS.

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