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Schemes across the continent and in the UK are challenging the European Insurance and Occupational Pensions Authority’s proposal that new Solvency II capital funding requirements, which were initially created for insurance firms, be extended to defined benefit pensions. Nonetheless, providers are waiting on the sidelines preparing to offer middle and back office services, as well as investment solutions to help clients comply with Solvency II.
Pension funds appear to be taking little action towards preparing for the rules, which if applied to the revised Institutions for Occupational Retirement Provision Directive could be signed into law next January and take effect a year later. But the lack of action should not be confused with apathy.
Pension funds face three pillars to the regulation. The first focuses on quantitative requirements such as measuring assets, liability, and capital. The second pillar deals with supervisory, or governance requirements, including the need for consistent risk management, while the third focuses on disclosure. Solvency II will impact a fund’s entire operation: accounting, data management, reporting, valuations, asset allocation, as well as risk-management solutions.
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