EUROPE – Solvency-II type measures could damage not only pensions but the whole economy, impeding growth, investment and employment at a time when Europe is under great pressure, PensionsEurope has warned.

Releasing its comments on the preliminary results of the first quantitative impact study (QIS) for the revised IORP Directive, the Brussels-based association argued that the harmonised Solvency II-type regulation Brussels is currently trying to implement will not be the most efficient means of getting Europe back on track.

It said the introduction of the holistic balance sheet (HBS) approach – proposed by EIOPA and the European Commission as a way to replace the solvency capital requirements (SCR) drafted under the Solvency II framework for insurers – could “drastically increase” the funding shortfall of IORPs.

“The impact of such a regulation would not only be on the pension sector but on the wider economy,” PensionsEurope said. “For instance, a potential €450bn shortfall in UK’s IORP is not only a pension matter, but rather an European economy issue.”

However, the association conceded that the impact of the HBS approach would differ between countries, as the European Insurance and Occupational Pensions Authority (EIOPA) noted in its preliminary report.

For this first exercise, participating funds were asked to assess the impact the HBS could have on their activities employing three scenarios – the benchmark approach and the upper-bound and lower-bound scenarios.

According to EIOPA’s preliminary results, while the benchmark scenario appears as highly detrimental to the UK, causing a shortfall of €526.5bn for local pension funds, it could also negatively impact schemes in the Netherlands, with their deficit potentially increasing to more than €200bn.  

By comparison, an upper-bound scenario would certainly benefit UK pensions with a surplus of €1.2trn.

PensionsEurope went on to say that the impact of the HBS approach would probably spread from those countries directly concerned to all EU member states, as the economies and financial markets are “highly integrated and interlinked”.

The association therefore argued that the first impact assessment study for the IORP II directive left too much room for interpretation.

“There are important variations between the countries participating in the QIS and between IORPs within those countries,” it said.

Additionally, the association voiced concerns over the cost of implementing a potential IORP II directive at European and national levels.

“Changing the supervisory framework of the pension sector at national level could be extremely costly,” it said. “This has already been seen in the context of Solvency II for insurers.”

PensionsEurope finally pointed out that the Green Paper on long-term financing also raised the question of the impact of cumulative prudential rules on long-term investment and macroeconomic financial stability.

It added: “These risks should be closely monitored and taken into account when regulating the pension sector.”

The Commission unveiled the Green Paper earlier on this year, stressing the importance of ensuring that any new prudential rules for occupational pension schemes did not “discourage” long-term financing.

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