European Pensions Slip the Solvency II Noose (For Now)

Michel Barnier offers breathing space to European pensions – but the issue had not been completely vanquished.

(May 24, 2013) — The European Commission has postponed the implementation of insurance-type solvency regulations on pension funds, giving schemes more breathing room on investment and liability matching.

Commissioner Michel Barnier said yesterday that the Solvency II regulations would not be imposed on the continent’s pension funds as more information was needed on whether the rules were appropriate and what effect they would have.

“I have decided first of all to present a legislative proposal focussing on governance, transparency and reporting requirements for occupational pension funds [in autumn 2013]. On those aspects there is broad consensus, at least on the principles,” said Barnier.

“This proposal will not cover the issue of solvency rules for pension funds, which will for the time being remain an open issue. In my view, the situation should be re-examined once we have more complete data. (…) We must not lose sight of the need to guarantee in the longer term a level playing field between different providers of occupational pensions.”

The move was widely welcomed across the pension industry, which has repeatedly called for these rules – that were initially intended to just cover the insurance sector – to not be applicable for pensions.

“Commissioner Barnier has made the right decision as it is vital to take more time for a thorough analysis of the effects of possible changes in solvency rules, which differ greatly between Member States,” said Matti Leppälä, PensionsEurope secretary-general and CEO.

“The great diversity of pension systems across the EU makes it very difficult to devise a ‘one size fits all’ system,” said James Walsh, EU & international policy lead at the UK’s National Association of Pension Funds. “We welcome Commissioner Barnier’s sensible decision not to go ahead with new rules on pension scheme funding. The proposals could have increased UK defined benefit pension deficits by 50%, causing great damage to pension schemes and their sponsoring employers.”

Some urged caution however, warning that the issue had not been dropped entirely.

“It would be premature to think that the Pillar 1 proposals have gone away for good,” said Punter Southall Head of Research, Jane Beverley. “Commissioner Barnier notes that solvency rules for pension funds ‘remain an open issue’ and that ‘the situation should be re-examined once we have more complete data’…The proposed holistic balance sheet may still therefore appear in a different guise, although not until after the end of the current term of the Commission in 2014.”

To read Barnier’s speech, click here.

Related content: Solvency II – Put Us Out of Our Misery

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