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February 17, 2012updated 13 Apr 2017 8:46am

Opposition to Solvency II for pension funds mounts in the UK

The European Insurance and Occupational Pensions Authoritys (EIOPA) review of the Institutions for Occupational Retirement Provision Directive aimed at making defined benefit (DB) pension funds subject to Solvency II capital requirements is meeting powerful opposition in the UK. In a recent speech he made it clear the UK would not accept a change of this nature, warning it would cost companies sponsoring DB funds £100bn ($160bn) and lead to widespread fund closures.

By LII editorial

The European Insurance and Occupational Pensions Authority’s (EIOPA) review of the Institutions for Occupational Retirement Provision Directive aimed at making defined benefit (DB) pension funds subject to Solvency II capital requirements is meeting powerful opposition in the UK.

Spearheading opposition is the UK government’s pensions minister Steve Webb. In a recent speech he made it clear the UK would not accept a change of this nature, warning it would cost companies sponsoring DB funds £100bn ($160bn) and lead to widespread fund closures.

Webb’s figure would appear to be an underestimate. JP Morgan Asset Management estimates Solvency II regulation would cost DB fund sponsors £600bn; and JLT Pension Capital Strategies has put forward a staggering figure of £1trn.

Raj Mody, head of PricewaterhouseCoopers’ UK pensions group, said: “While attempting to improve pension scheme security, these new rules could actually kill off occupational pension schemes altogether.

“We estimate the cost on UK business would be in the range of £250bn to £500bn. In terms of the impact on the UK economy, this is like wiping out a quarter of the FTSE100.”

Mody added that the extra costs for companies would ultimately be borne by individual savers, who would see less generous pensions, whether DB or defined contribution.

“The [EIOPA] plans would therefore work against the initiatives the UK government is planning to encourage long-term saving,” he stressed.

Also throwing its weight behind opposition to the EIOPA move is the UK’s National Association of Pension Funds (NAPF).

“Solvency II type rules would not only put additional pressure on companies struggling for survival, but would also force them to divert money away from investment and new jobs,” said NAPF CEO Joanne Segars.

She added: “The UK pension system already provides a strong system of member protection through the employer covenant, the work of The Pensions Regulator, and the safety net provided by the Pension Protection Fund. We do not need new solvency rules for pensions.”

Insinuating the European Union (EU) has more important other issues to deal with, Segars added: “Any European action on pensions should focus on where it can add value across EU member states.

“The EU should concentrate on improving outcomes for the 60% of people without access to workplace pensions and on improving governance and communications. The EU should not try to fix a problem that does not exist.”

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