The Pensions Regulator (TPR) encourages the pensions sector in the UK to respond to the consultation on the impact assessment of changes to the IORP directive which was launched last Friday by the European Insurance and Occupational Pensions Authority (EIOPA).
Brussels is reviewing the directive in an attempt to create a stronger cross-border occupational pension system. EIOPA supplied technical advice to the commission earlier this year and proposed a holistic balance sheet as a means to achieve the commission's objective of a harmonised prudential regime for IORPs.
EIOPA's advice was based on the results of a quantitative impact study (QIS). It was emphasised that the feasibility of implementing the holistic balance sheet in practice and introducing a common level of security needs to be further investigated.
Theconsultation documentpublished by EIOPA is inviting feedback on the proposed methodology to be used when the QIS takes place in the autumn. It is primarily concerned with how the value of different components in a DB pension scheme's holistic balance sheet should be calculated - the scheme's assets, 'technical provisions' (i.e. liabilities) and the 'employer covenant' (i.e. the employer's ability to support the scheme) as well as the solvency capital requirement.
The need to reflect different national approaches across the EU has added to the complexity of the methodology, says TPR. To help UK stakeholders, the regulator says it will shortly be holding a workshop for DB pension specialists to explain issues in the QIS and how it is to be taken forward in the UK.
TPR's chief executive Bill Galvin said: "We will continue to work with EIOPA, the UK government and stakeholder groups to ensure that the UK approach to pensions regulation is understood and recognised by the EU. If the commission chooses to adopt EIOPA's advice on the use of a holistic balance sheet, we will seek to ensure that it is implemented in a flexible way that is consistent with our scheme-specific approach.
"I can also reassure pension trustees that the regulator plans to carry out the autumn QIS using our existing data and analysis so there will be no additional burden upon schemes. Any large schemes that wish to run the methodology voluntarily are of course able to do so, and the regulator will take into account their estimates in feeding results to EIOPA."
The National Association of Pension Funds (NAPF) commented on the consultation with its chief executive Joanne Segars saying: "We support the European commission's objective of achieving secure, sustainable and adequate pensions. However, we remain concerned that EIOPA's proposals will undermine these principles. We are therefore very disappointed that the holistic balance sheet is still on the table. These rules would damage final salary pensions in the UK and elsewhere across Europe."
Segars said: "The NAPF has calculated these rules could cost UK pension funds at least an extra £300bn. Faced with extra funding demands, companies will either divert money away from business investment and job creation to pay for these pensions, or will simply decide to stop offering them."
Aon Hewitt has said that the consultation is missing the point of the issues raised. Kevin Wesbroom, managing principal at Aon Hewitt said:"The assessment needed to examine the real issues for UK pension plans and the impact on their sponsors' ability to invest in their business for the future. Instead we have a technical consultation on how a system could be made to work, but with no clear view of what that system will be used for. What problem is it supposed to address? What will regulators do with the calculation results? How will that address whatever the problem is? What will running the system cost? This is not what was needed - we urge the UK government to press the EU to consider the application of the holistic balance sheet rather than its technical construction."
First published 18.06.2012
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