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Included in the White Paper will be a proposal to review the IORP Directive. This review currently seeks to apply similar capital adequacy-based regulation to pension funds as will be applied to insurance firms under Solvency II.
Solvency II rules will redirect investment towards lower return, fixed income assets such as Government bonds, away from equity and growth asset classes such as private equity and infrastructure. This is because insurers’ capital requirements must be calibrated to the value at risk, marked to market, over a 12-month period.
This effect is further exacerbated by exaggerated risk weights attached to private equity that fundamentally misinterpret the risk-reward ratio of this long-term, value-enhancing asset class.
Imposing Solvency II requirements on pensions will effect occupational pension schemes abilities to meet their long-term liabilities and invest, through private equity and venture capital, in SMEs, innovation and growth.
The proposals have the potential to increase vastly the cost of pension plans for millions of Europe’s employees, reduce their retirement incomes and undermine investment at a crucial time for Europe.
This is why trade unions, employers, pension funds and the EVCA have all raised serious concerns and asked that the European Commission carry out a thorough impact assessment on the effect of this proposed regulation on both retirement provision and the wider effect on the economy.