Yesterday, the EC announced it will postpone proposed Solvency II requirements for pension schemes.
Commissioner Michel Barnier said that he will not include the proposals in the new version of the Directive on Institutions for Occupational Retirement Provision and instead the new directive will focus solely on transparency and disclosure.
The industry has welcomed this move as many had fears about the crippling costs. The National Association of Pension Funds previously warned that the pension proposals that would have required pension schemes to adhere to Solvency-II type rules could increase UK pension fund deficits to at least £450bn.
Last year, JLT Pension Capital Strategies estimated that UK companies may have to pump as much as £1,000bn into their pension schemes due to this revamp, while JP Morgan Asset Management estimated the cost for UK defined benefit schemes at £600bn.
Charles Cowling, director at JLT Employee Benefits said: “There is no doubt that this is an excellent outcome for the pensions industry and I’m extremely supportive of Mr Barnier’s decision not to hamstring pension schemes with overly onerous and unnecessarily complex funding rules.
“As most insurers have been bemoaning, Solvency II has cost the insurance industry hundreds of millions of pounds/euros to little effect. The now- postponed funding rules for pensions could have been even more costly for pensions.”
Joanne Segars, chief executive at Napf, added: “We are very pleased the European Commission has taken this step. We think this is the right approach and are fully committed to work with the European Commission to find good rules on governance and disclosure.”
Paul Kitson, partner in PricewaterhouseCoopers, said: “It is good news for the pensions industry and savers alike that the European Commission has recognised that the directive was unworkable in its current form. As proposed, the directive was set to cost UK corporates in excess of £450bn which would have been a significant and unwelcome burden for the industry.
“It is encouraging that the European Commission recognised the problems evaluating how much company sponsors could afford to contribute to their pension scheme. This element especially required significant further thought, which would have been impossible within the proposed timetable.”
He added that with the implementation of Solvency II continuing to be pushed further back, “it always seemed impractical” that the European Commission were going to be able to bring similar solvency provisions to pension schemes within any sort of foreseeable timetable.