Some would argue that a Europe- wide regulatory regime for pensions is long overdue. After all, as a continent we have universally failed to take account of longer life spans and the long term nature of pension liabilities.
With most final salary schemes in the United Kingdom in deficit, and spectacularly so at that, from an employee’s point of view tighter regulation would be welcome.
What does the European Commission have in mind? It has recently published a Green Paper outlining its ideas for solvency requirements for pension schemes, similar in nature to those that will be required from insurance firms from 2012.
Given that the idea was only expressed in a Green Paper, the proposal is in its infancy. The European Commission recognised that the concept needs to be tested, in particular in relation to how solvency requirements would affect the availability of pensions and their price. The European Commission have also acknowledged that the Solvency II requirements for insurers cannot simply be transferred to pension schemes, given the long term nature of pension arrangements.
Reaction from the pension industry has been mixed and cautious, to say the least. From the point of view of the National Association of Pension Funds, which is an industry body that represents pension schemes, there is a concern that the European Union contains pension and investment products that are so different they would be impossible to regulate under the same umbrella. NAPF also pointed out that the United Kingdom already has a robust regulatory regime. In recent cases the Pensions Regulator has handed out significant contribution notices, proving that it can and will use its might to enforce pension rules.
The CBI expressed a concern that such solvency requirements may make pension funds too timid in their choice of investment, leading to small rates of growth in pension assets.
What might the changes mean from an employee’s point of view? Given that the idea is only a Green Paper, any changes are likely to be a few years away, if they happen at all.
