EUROPE - Applying Solvency II legislation to pension funds would be inappropriate and unnecessary, according to speakers at the European Pension Funds Congress in Frankfurt yesterday.
Wil Beckers, managing director, DSM Pension Services, and chair of the European Federation for Retirement Provision (EFRP) working group shadowing the Solvency II initiative, illustrated how pension schemes in European member states would have to raise funding levels by up to an aggregate 67% in the case of Ireland, 57% in the UK and 39% in the Netherlands under the proposed rules.
Representatives from the EFRP said they were happy with European commissioner Charlie McGreevy’s strongest indication to date, a day earlier, that the legislation would not apply to pension funds.
Beckers commented: “We are confident the right decision will be taken in the future.”
There was consensus at the conference that the IORP directive was ample regulation for the industry and member states’ own regulators had the power to enforce rules already in place.
Beckers highlighted the dangers of implementing Solvency II which would force pension funds to address their risk profile and sell off equity holdings in favour of bonds.
He said: “If pension funds had to sell off much of their equities and buy bonds, bond prices would go up and it would lead to a crisis in the markets.”
These sentiments were echoed by Tom Merchant, chief executive, Universities Superannuation Scheme: “We need to give the IORP directive time before bringing in more regulation which could potentially cause turmoil in the stock markets.”
Merchant continued: “This turmoil could result in employers walking away from current defined benefit set ups leading to future pensions poverty.”
Two years ago the EFRP set up a working group to study the implications of implementing Solvency II.
Merchant concluded: “Pension funds neither want nor need this legislation, it’s time people stopped looking to fix problems that don’t exist.”
Elemer Tertak, director financial institutions, Internal Market and Services DG, European
Commission, said on Tuesday: “Because of difference in insurance and pensions it was decided Solvency II will ultimately not apply to pensions.
“The most important difference is that pension funds can exploit the opportunity of inter-generational sharing of risks.”
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