After receiving much criticism from the UK pensions industry and political figures, and a similar reception from Eurozone countries including Germany, the European Commission has agreed to axe the solvency requirements in relation to pension funds from the Institutions for Occupational Retirement Provision II ("IORPS II") Directive due to be published later this year. Previously, the EU Commission had proposed that IORPS II would impose more stringent solvency requirements on pension funds. The Commissioner had said that new solvency rules were necessary to ensure a "level playing field" between insurance companies (which sell pensions in some EU member states, as well as to protect pension savings for crossborder workers).
This decision will be greatly welcomed by UK trustees and employers, who were concerned about the impact that the proposed funding requirements and deficit calculation methods would have. The European Insurance and Occupational Pensions Authority conducted a quantitative impact study in April of this year which confirmed that they could cause a rise in funding deficits in UK DB schemes from £300bn to £460bn.
In a memo, published on 23 May 2013, Internal Market and Services EU Commissioner Michel Barnier said that the revised IORPS II "will not cover the issue of solvency rules for pension funds". However, the matter is not closed indefinitely. He continued: "In my view, the situation should be re-examined once we have more complete data. I emphasise that with regard to solvency rules, we must not lose sight of the need to guarantee in the longer term a level playing field between different providers of occupational pensions".
In addition, Barnier said in his memo that he intends to introduce new governance and disclosure requirements, for example setting minimum standards for fund managers and control systems. IORPS II still has the potential, therefore, to impose additional compliance costs on UK schemes and the full extent of any additional governance requirements remains unknown. The Directive is to be published in the autumn when further detail on any new requirements should be available.
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