Confusion over Solvency II reach

Gabriel Bernardino chairman of the European Insurance and Occupational Pensions Authority, who advises the European Commission, told the National Association of Pension Funds’ annual conference the new rules would only be supervisory.

But there was little confidence among delegates that European commissioner Michel Barnier would heed this advice. One fear was supervisory measures would come with a 10-year deadline for full compulsion.

The impact was laid bare in a conference presentation by Tom Merchant, chief executive of the Universities Superannuation Scheme, which showed that EIOPA’s holistic balance sheet calculation method would push liabilities in his scheme from £35bn to £65bn.

The method includes different capital weightings for equities and fixed income assets, an extra level of risk capital to correct sharp market downturns and a minimum capital requirement.

Merchant also expressed concern with the speed of legislation given general widespread confusion over the wording of EIOPA’s lengthy quantitative impact study document.

Merchant described parts of it as “incomprehensible”.

Responses are being sought by December and the EU is understood to want to proceed with a directive next summer.

Mark Hyde-Harrison, chairman of the NAPF, believed the intention would be to make such standards compulsory.

“Bernardino said he is there to secure fund members’ benefits. We say, if you wish to secure benefits, all funds need to be funded to solvency,” he said.

He added any such directive would be counter to the EU’s primary focus on restoring growth.

“Let’s not forget that a number of European countries have companies with pension schemes in Ireland, UK, Netherlands and Germany [countries most affected by solvency rules],” he said. “Santander and Ferrovial have large pension fund obligations in Europe, so it affects companies across [the continent]. There is a need for everyone to understand how it impacts on how growth.”