EU delays Solvency II rules for pensions

The European Commission will postpone applying Solvency II’s strict capital requirements on pension funds.

In a speech last week Michel Barnier, the European commissioner in charge of drafting business regulations, confirmed the suspension of any solvency rules for pension funds under the Institutions for Occupational Retirement Provision (IORP) directive. 

The industry had been long concerned that the Commission would demand pension funds meet the same capital requirements as insurers under the Solvency II directive. 

Solvency II requires insurers to hold varying levels of capital based on the riskiness of an asset. For private equity holdings, for example, insurers are required to set aside €49 for every €100 invested under a default risk model. The industry feared that this would make private equity investments too expensive for pension funds. Certain debt instruments would also fall foul of this requirement. 

Under alternative measures, the Commission will propose pension fund legislation in the coming months that focuses on governance, transparency and reporting requirements. Any pension fund rules inspired by Solvency II will be postponed until the next commission officer takes office in November 2014. 

“We have long argued that Solvency II style rules for workplace pensions are inappropriate and disproportionate, ” said in a statement Dörte Höppner, secretary general of trade group the European Private Equity and Venture Capital Association.

She added: “Such regulation would deter pension funds from investing in long-term investment vehicles such as private equity funds and damage Europe’s economic recovery.” 

The EVCA hopes the change of heart on pension capital requirements will prompt similar changes for insurers. 

However at the moment similar reforms for insurers seems unlikely. A study released in April by the European Insurance and Occupational Pensions Authority, the market watchdog responsible for supervising Solvency II rules, confirmed the government's viewpoint that insurers should set aside significant amounts of reserve capital when investing in private equity or private debt.