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According to the three organisations, companies sponsoring occupational pensions would see the cost of such funds increase significantly due to the capital requirements imposed. "This would force them to divert money away from investment in growth, job creation and research and development", the letter said.
In addition, the NAPF, CBI and TUC argued that pension schemes would need to review their investment strategy in order to comply with the new regulations. Like many pension associations and asset managers, the three organisations believe that investment strategies would shift away from return‐seeking assets – such as equities – into risk‐free high‐quality bonds and gilts, if liabilities were to be calculated using a risk‐free discount rate.
"Less equity investment would restrict capital flows to businesses, at a time when they are being asked to put even more cash into schemes", the letter continued. "With European pension funds holding over €3 trillion in assets, a major switch in asset allocation would have an immediate catastrophic impact on the stability of European financial markets."
Katja Hall, the CBI's chief policy director and one of the letter's signatories, previously warned that Solvency II regulations would cause a "massive" flight from equities, with funds forced to focus on fixed income over investment in the stock market. She said at the time that "large and unpredictable liabilities" were harming a company's ability to both attract investment and grow as a business.
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