Delayed solvency requirements under a new Institutions for Occupational Retirement Provision directive are unlikely to be passed, even after legislative revisions and changes to the European Union, according to new research.
The political drive to implement European-wide solvency requirements on pension funds has faced stiff opposition from pension schemes across the continent, including those in the UK, due to the additional pressure it would put on funding.
Last month, the European Commission announced plans to temporarily drop the solvency elements of the directive after concluding more comprehensive data was needed. It is expected to revisit the plans at a later date.
Research by JPMorgan Asset Management, released today, finds revisions to the solvency requirements and impending changes to the EU’s membership and voting rights will not guarantee the plans would pass the different stages of legislation to become part of the directive.
Paul Sweeting, European head of strategy at JPMAM and co-author of the report, said the commission needed to make a strong case for the solvency rules to get member states on side.
“Providing [the UK, Germany, the Netherlands, Belgium and Ireland] carry on their opposition to Europe-wide solvency rules being implemented, then it is very unlikely they they will be put into place,” he said. He added it was not even clear whether the rest of the directive would pass.
The report found 260 votes out of a new total of 352, including seven for Croatia after the country’s accession to the EU on July 1, are needed to pass legislation, and 93 votes are needed to block.
Qualified majority voting in the EU begins on November 1 2014, but will not be in full effect until 2017. After this, blocking legislation would only become “marginally more difficult” because each country is no longer assigned a number of votes in the Council of the European Union.
Changing political landscape
But James Walsh, EU and international policy lead at the National Association of Pension Funds, said there might still be a need for schemes to be cautious.
"You can’t assume that one of the [countries] opposing the directives now will necessarily still be opposing it in say three or four years time," he said.
PensionsEurope, which previously welcomed the commission’s decision to rethink the solvency rules, said it was too early to speculate about what might happen in the future.
Matti Leppälä, PensionsEurope secretary general and CEO, said: “We are pleased that the commission has at least postponed the quantitative requirements. We anticipate that they will come back to this issue.
“We don't have an alternative proposal but are not convinced that the framework envisaged by the commission is in the end feasible and sensible.”
A spokesperson for the EC said it had nothing further to add to the position outlined by European commissioner Michel Barnier in May.
Proposals for the remaining parts of the directive are scheduled to be presented in the autumn of 2013, focusing only on the areas of governance, transparency and reporting requirements.
