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Pain warns Solvency II poses threat

FSA managing director of retail markets Jon Pain says Solvency II is “a potential timebomb” for the pension market.

At the Gleneagles Savings and Pensions Industry Leaders’ Summit on Saturday, Pain called on the pension industry to do more to convince Europe that a liquidity premium should be allowed under the new rules.

He said: “The directive poses a significant risk for the pension market. The nub of the issue arises from the question of whether the legislation will allow firms to continue to take into account a liquidity premium in capital provisions for annuity business.

“If the implementing legislation does not allow for it, annuity providers are likely to have to significantly increase the capital they hold and, as a result, increase the cost to consumers.”

The Association of British Insurers recently warned that the amount of capital annuity providers would have to hold if the proposals were passed could be equivalent to the current market capital of the whole industry.

Pain said that this was “probably an overestimation” but the concerns highlighted the “potential bombshell” for the pension market.

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