The National Association of Pension Funds has warned controversial EU proposals to impose Solvency II-style funding requirements on UK pension schemes are “not dead”, with European regulators keen to resurrect them.
In May, European Commissioner Michel Barnier confirmed he would not include reforms to the funding regime for pension schemes in forthcoming changes to the Institutions for Occupational Retirement Provision, or IORP, directive.
There had been fears the proposals, which would have forced defined benefit schemes to hold extra capital in reserve, would cost UK scheme sponsors £450bn.
Barnier said the Commission will instead focus on reforms aimed at improving governance, transparency and reporting requirements in occupational schemes and will carry out further research on the merits of increasing capital requirements for pension funds.
However, speaking at the Money Marketing Retirement Planning Summit in Cork last week, NAPF EU and International policy lead James Walsh said officials at Eiopa, the European pensions regulator which advises the Commission, remain intent on reforming the pensions capital regime.
He said: “The Solvency II funding proposals are not dead yet, they are only being shelved. I was in Frankfurt last week talking to some Eiopa officials and they said it will definitely happen.
“It will be up to the next EU Commissioner to make that decision but Eiopa are clear that they want to see this regime introduced.”
Walsh also warned the proposed changes to the IORP directive could have implications for defined contribution pension schemes, which could be required to hold extra capital to cover “operational risks”.
He said: “There are also issues for defined contribution schemes. There is a little known but important proposal that DC schemes will be made to hold extra capital against ‘operational risk’.
“That will be a significant extra cost and I am surprised there hasn’t been more debate about it.”