EUROPE – Pension representatives in the UK have expressed fears that next year's new European Commission might reintroduce capital requirements for IORPs, but welcomed "for now" the work on the valuation of sponsor support undertaken by the European Insurance and Occupational Pensions Authority (EIOPA).
EIOPA yesterday published its final report on the first quantitative impact study for the revised IORP Directive, three months after it sent its preliminary results to the Commission.
It also published a discussion paper on an improved methodology for valuing sponsor support.
In response, Mark Dowsey and Dave Roberts, both senior consultants at Towers Watson in the UK, said it remained to be seen whether the new Commission next year would pursue the introduction of pillar one in the directive – which focuses on capital requirements – with the same zeal as their predecessors.
"However," they said, "even if it does not, given that EIOPA has an explicit consumer protection role, anyone thinking that pensions 'solvency' will be left alone may need to think again."
According to Towers Watson, the so-called holistic balance sheet (HBS) approach – whose impact was analysed by the first QIS – remains a key component of the thinking within both the Commission and EIOPA.
Roberts and Dowsey also insisted that, within the HBS, the value of sponsor support is an integral part, at least in the UK, of determining where the bulk of all European DB pension liabilities stands.
They said: "The output from this alternative approach [for sponsor support], which is broadly similar to that used by banks when they consider the credit-worthiness of organisations, is still a single number, although the paper suggests that more calibration would be needed before it could be used or adapted for a specific supervisory framework."
The National Association of Pension Funds (NAPF) argued that EIOPA confirmed in its final report that Solvency II-type proposals would increase UK pension fund deficits by around £150bn (€175.5bn) to at least £450bn.
James Walsh, lead EU policy adviser at the NAPF, said: "This is final confirmation from the EU's own advisers that Solvency II-type rules would inflict an unpalatable and unnecessary blow to UK pensions.
"It is a relief commissioner [Michel] Barnier has postponed these plans for now, but this report underlines the need for them to be scrapped completely. They must not be revived by the next European Commission."
Walsh insisted that EU policymakers should instead take a step back and think about what the real priorities should be for pensions.
Aon Hewitt echoed those thoughts and found it "reinsuring" that EIOPA and the Commission had, for the time being at least, abandoned plans for new solvency requirements.
Martin Lowes, partner at Aon Hewitt, added that, more than anything, the consultancy was relieved that "common sense has prevailed" and welcomed EIOPA's decision to launch a discussion paper on sponsor support.
"Previously, EIOPA had been giving the impression that sponsor support could be determined using a few lines of complex mathematical formulae," he said.
"There now appears to be willingness to use a method that allows the use of judgement as well as the type of credit-assessment techniques commonly used by other financial institutions."
Lowes concluded that the discussion paper released contained some "good guidelines" to allow sponsor support to be determined in a more robust, transparent and proportionate manner.
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