UK - Pension fund trustees may have to set aside "vast additional reserves" to cover risks posed by the possible incorporation of some aspects of Solvency II in the Institutions for Occupational Retirement Provision (IORP) directive, Andrew Cox, partner at Lane Clark & Peacock, warned.
Cox said the possibility of Solvency II being introduced into the IORPs directive would have a “disproportionate” impact on UK businesses, and added its impact would be significant.
“Both UK balance sheets and profits will be weakened as new reserves are set aside and as pension funds reduced risk even further pushing up demands for company contributions,” he said.
According to Cox, introducing Solvency II in the directive would see pension schemes becoming driven by short term risk mitigation strategies instead of having a long term perspective.
In September, Global Pensions exclusively revealed the European Insurance and Occupational Pensions Committee had concluded IORPs would not be included in the scope of Solvency II. All members had said it would not be feasible.
However, the committee was divided as to whether a full or adapted version of Solvency II should be applied.
In support of Cox’s fears, one committee member claimed a Solvency II process for IORPs could lead to market instability.
Cox said a decision should be taken on the issue, "sooner rather than later" as this would help pension schemes plan their strategy in line with any new regulation.
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