The chairman of the pan-European federation of pension funds has called on UK schemes to get in front of continental insurance groups and grab the European Commission's attention if they don't want Solvency II accounting regulations applying to pensions

Patrick Burke, the Irish head of the European Federation for Retirement Provision (EFRP) told the UK's National Association of Pension Fund's (NAPF's) spring investment conference in early March that UK funds have to raise their concerns over Solvency II as loudly as possible to make sure that the European parliament understands their concerns. "Ensure your corporate voice is fully exercised," he warned, "because the impact of the agenda will be quite significant for pension funds, for the benefits their members will see in the future and will have a significant impact on our economies."

There is alarm at the prospect that the strict forthcoming European accounting regulations could be applied to defined benefit (DB) schemes across the union, and bring vast expense and tight investment restrictions in their wake. Burke said: "There is a need to recognise the distinction between workplace pensions and the insurance industry. If this is not done there is the simplistic option of applying the Solvency II directive to defined benefit schemes."

Burke warned further of the damage that could be done by conservative regulatory regimes applying to both pensions and insurers by stating: "We are concerned that too much focus on one aspect of pension provision such as security can be very detrimental to other necessary interests like affordability, sustainability and adequacy."

He predicted that Solvency II would pose a threat to financial markets, while moving €4 trillion of assets in the direction of the insurance industry would bring "more systemic threat to the financial system whilst reducing benefits to pensioners".

"There is a danger of regulation being driven by an agenda of risk elimination, not risk management," he added.

Recommendations from a recent European Parliament report on the commission's Green Paper on the matter have paved the way for further lobbying. The report calls for the special interests of occupational pension schemes be fully considered in any impact assessment made by the Commission. The spotlight is now firmly on the European Commission which will be looking at parliament's recommendations ahead of a white paper later this year to outline policy options.

Burke also said that UK pension funds should boost their voice and pass on their concerns to the Commission to counter the continental pro-Solvency II campaign. This lobby group is believed to hold much influence over French Internal Market and Services Commissioner Michel Barnier, who is likely to be the decisive figure when the crucial review process is held in the third quarter of this year.

Chris Verhaegen, Secretary General of the EFRP told Pension Funds Insider: "We hope Barnier listens to lots of parties by opening up a wide-ranging review that will make the directive fit for further use." The European trade union organisation ETUC and employer group BusinessEurope are currently lobbying Barnier directly with their concerns and anticipating that the chance to engage in due 'social dialogue' will give a platform to counter the interests of Barnier and the continental insurers.

Joanne Segars, Chief Executive of the NAPF told delegates at the conference that UK funds were yet to impress their interests upon some key EU staff, saying: "Officials at senior levels in Brussels and MEPs have a very poor understanding of occupational systems generally and how the UK system works." Segars added that the NAPF's cooperation with the TUC and CBI in campaigning against Solvency II should ultimately help their case in Brussels, stating that "if the unions and employers are agreeing against pensions then you effectively have to listen."

Confident Euro parliament

Conservative MEP, Vicky Ford, has been in discussion with some UK pension funds, including the Tesco Pensions Scheme, in order to reflect industry concerns during the debate surrounding the recent green paper pension review. She told Pension Funds Insider: "I feel strongly that UK pension funds need to continue to speak not just to British MEPs but to MEPs from across Europe to ensure that the debate is well informed and to ensure that any capital regime put in place does not lead to costly reductions in pension returns for UK and EU citizens."

Peter Skinner, a Labour MEP who worked closely on the review of the green paper told Pension Funds Insider that he was confident that the recommendations of the European Parliament not to apply Solvency II to pensions would be heeded. Skinner said: "There was a sufficient majority in parliament against the application of the directive to pension funds as in reality there were only two member states against this. Pension funds can be deservedly confident that their voice has been heard but we will need to closely supervise the implementation to ensure that nothing slips out that we would not want in the process."

He added: "Parliament was keen to ensure that long-term pension insurance does not need to be treated with identical regulatory measures as short-term insurance. Full risk and quantitative assessments have to take place before the new regulations are passed and I am hopeful that the commission will take that seriously and reach the same conclusions as the European Parliament."

Insurers have objected to the pleas from the pensions industry for exemption from the new accounting standards by arguing they would be handed a major competitive advantage by operating in a laxer regulatory environment.

Michaela Keller, director general of the European insurers' federation CEA has gone on record claiming that the Solvency II principals are appropriate for pension funds, "provided the economic features of all pension products or schemes are taken into consideration".

Skinner challenged the insurance lobby's claims of operating a common industry with pension providers by stating: "Life insurers are typically eager to differentiate themselves from pension providers in terms of their names and services. If French insurers feel aggrieved that they might be treated differently in the new regulatory regime, they should perhaps redefine themselves closer to the model of the pension industry rather than asking for regulation to be shaped around them."

A spokesperson for Michel Barnier, Catherine Bunyan, told Pension Funds Insider that the pleas of funds were being heard, if not instantly accepted: "We are aware that the UK pension funds are concerned about the review of the solvency rules for pension funds. The rules for life insurance companies will change with the new Solvency II framework so it is legitimate to also look at the solvency rules applicable to pension funds in order to ensure that a high level of protection for the beneficiaries is assured."

Bunyan continued: "The Commission has not yet taken a decision on the way forward, but will seek the advice of the newly-created European supervisory authority (EIOPA) on how to amend the pension fund Directive in order to establish more consistent and comparable rules across the internal market. The rules contained in Solvency II for insurers are a useful starting point in this context."

"However, the specificities of pension funds will in any event need to be taken into account when revising the existing framework," she added.

dbillingham@wilmington.co.uk

First published 24.03.2011