Europe-wide moves to overhaul how the solvency of defined benefit pension plans should be dropped, according to the Pensions and Lifetime Savings Association, on the grounds they would be too costly to implement in the UK.
The trade body urged the European Insurance and Occupational Pensions Authority to scrap plans for what is know as the ‘holistic balance sheet’.
The holistic balance sheet is aimed a creating a common tool for a European prudential framework, according to Eiopa, whilst taking into account the diversity in national occupational pension schemes.
Under a solvency-based system as proposed in the holistic balance sheet, the combined deficit of defined benefit pension schemes would increase to €967bn (£770bn), from €318bn (£253bn) under the current UK regime.
The calls from the PLSA come as Eiopa announced its decision not to continue its other work on pension fund solvency.
Joanne Segars, chief executive of the PLSA, welcomed the decision as a “success”, but added the organisation should go further.
“Abandoning the solvency project is a good decision, but Eiopa should now go further and drop the holistic balance sheet altogether.”
She added Eiopa’s decision to end its work on solvency marks an important development in the long-running debate about a solvency-based funding regime for pensions.
“It is good news for pension schemes in the UK and Europe and a result our member pension schemes have campaigned tirelessly to reach.
“Eiopa now proposes a new reporting regime for pension funds, to run alongside existing regulation. The report acknowledges this would add €210m (£167m) a year to costs,” stated Ms Segars, adding that this only causes unnecessary confusion without delivering any benefit to scheme members.
The PLSA believes there are more pressing priorities for Eiopa to pursue, such as extending workplace pension saving to the 60 per cent of EU citizens who have no access to it at present.
In January this year, the UK passed a stress test of occupational pensions carried out by the European regulator.
At that time, Eiopa published the results of its stress test, which looked into the resilience of defined benefit and hybrid pension schemes against adverse market scenarios and increased life expectancy. It also looked at the potential vulnerabilities of defined contribution schemes.
Dan Farrow, director at Chelmsfordbased SBN Wealth Management said: “I bet this outcome gave Trustees and financial directors of sponsoring companies huge relief, as many have been grappling with deficits in the last few years brought about by low gilts yields.
“Defined benefit schemes need to be monitored and managed better for sure, especially at the smaller end of the market, but raising solvency levels doesn’t address the fundamental issues”.