Solvency II – leave workplace pension schemes out, say NAPF and EFRP

Currently IORPs have their own EU-level regulatory regime, namely the IORP Directive. This was adopted in June 2003 but was not in full operation until May 2007. The EFRP report, which is supported by the UK’s National Association of Pension Funds (NAPF), asks the EU to hold back on any rapid change to Solvency II. They say that the IORP directive has not yet bedded down, nor is there any evidence of a need to bring them under an insurance-like regulatory regime. EFRP say that the application of Solvency II to IORPs would ignore differences between life insurers and IORPs, harm the provision of workplace pensions where they are the main financing vehicle for workplace pension provision, have a very detrimental effect on the EU’s financial markets and would increase financial systemic risk.

EFRP Chairman Angel Martinez-Aldama said: “Imposing Solvency II funding rules on workplace pension funds would result in lower pensions for millions of EU citizens. Applying such rules to Defined Benefit and hybrid schemes would simply make them too expensive for employers to offer thereby undermining the long-term safety and sustainability of high quality workplace pension schemes.”

Also commenting on the EFRP report, Nigel Peaple, NAPF Director of Policy, said, “We hope MEPs are listening because if they extend the rules for insurers set out in the Solvency II Directive to company pension schemes (IORPs), they will undermine pension provision across the EU. The report is clear. Rather than securing pensions, applying Solvency II to company pension funds operated under the IORP Directive would simply lead to their closure.”

NAPF say that many EU states, including Belgium, Ireland, Netherlands, Spain, and the UK, would be severely affected. In these countries, funding levels would have to be increased by 40-60%.