Funds News

Pensions watchdog drops plans for EU-wide capital regime

LONDON (Reuters) - The European Union’s pensions regulator on Thursday ditched plans for a bloc-wide capital regime for pension funds, proposing instead checks on funds to make sure they are robust enough to withstand low interest rates and people living longer.

A group of elderly people sit on a bench near a fountain in a park in Nice, France, March 30, 2016. REUTERS/Eric Gaillard

The European Commission has already dropped its own plans for EU-wide capital rules for pension funds after opposition from industry and governments, who said they would increase pension fund deficits.

After the Commission’s U-turn, the EU regulator looked at an alternative, so-called holistic balance sheet assessment which considers all the risks that pension funds face, but without determining capital levels.

The regulator, the European Insurance and Occupational Pensions Authority (EIOPA), said a one-size-fits-all solvency regime would not be appropriate due to the potential significant negative impact.

“The big story today is EIOPA dropping their long-standing project of developing an EU-wide solvency regime for pensions,” said James Walsh, policy lead, EU and international for the Pensions and Lifetime Savings Association, a UK industry body.

“This would have increased the UK pension scheme deficits significantly,” Walsh said.

Instead, the regulator has recommended that pension funds conduct a common risk assessment to measure the impact of certain stress scenarios. The funds would then publish the outcome so that investors could compare results.

It estimated the assessment would cost the industry up to 300 million euros ($339 million) annually, and would be in addition to its own stress test of pension funds every two years.

Introducing the pan-EU risk assessment would cost 210 million euros for Britain’s pensions sector, two-thirds of the total cost across the EU, as there are so many defined benefit schemes in Britain, the regulator said.

Investors would end up with two sets of numbers, one from balance sheet assessments done under the EU’s patchwork of national rules and the other from the assessment the EU regulator is proposing.

EU pension funds currently calculate their capital requirements under national rules.

EIOPA Chairman Gabriel Bernardino said relevant, transparent disclosure would lead to a dialogue on the long-term sustainability of occupational pension promises and encourage timely adjustments.

“As such, our recommendations contribute to the protection of pension scheme members and beneficiaries and to a fair distribution of shortfalls between generations,” Bernardino said.

The recommendations would have to be turned into EU law to take effect.

The European Parliament and EU member states are locked in talks on updating the bloc’s rules on occupational pensions. Including the pension regulator’s recommendations in the final text would be one way of implementing them.

($1 = 0.8881 euros)

Reporting by Huw Jones; editing by Jason Neely and Jane Merriman