EUROPE - A consultation paper published last week by the European Commission could represent a reprieve for UK companies sponsoring defined benefit (DB) schemes, to which insurance-style funding requirements might be applied, said Watson Wyatt.
Further, the company said most UK DB schemes did not fall within either category, according to the legal advice the government had received.
Chinu Patel, senior consultant, Watson Wyatt, pointed out when contemplating innovative scheme designs, one factor to bear in mind should be whether the scheme could be considered to be a Regulatory Own Fund.
He added: "Funding and capital adequacy rules are less important in countries where people have a bigger state pension to fall back on or where companies mostly provide unfunded retirement benefits.
"It is encouraging that the Commission recognises that Member States like the UK, which have most at stake, should retain the flexibility to set rules which take account of the employer's commitment to stand behind the pension liabilities."
Watson Wyatt noted more stringent funding requirements for cross-border schemes were unlikely to encourage employers to set these schemes up.
Patel concluded: "For schemes that do carry out cross-border activity, adopting Solvency II, in part or in its entirety, would increase the amount of money that employers have to provide. There has been a lot of talk about cross-border pension schemes but not much action. Making them more expensive to fund is hardly likely to change that."
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