The European Commission's decision to drop its controversial 'Solvency II' plans has been welcomed across the UK.
The plans, which were expected to place an additional cost on occupational pension scheme employers of in the region of £450 billion, were due to be brought in through the amended Institutions for Occupational Retirement Provision (IORP) directive. The idea behind the funding and solvency proposals was to significantly increase the capital requirements for defined benefit scheme sponsors, with a view to better protecting pensioners.
The Confederation of British Industry and minister for pensions, Steve Webb, were among many to express grave concern over the plans, noting that long-term investment in private equity would be considerably reduced because of the heavy capital burden. Pension funds would resultantly lose out on good returns, schemes would be put at risk and, contrary to the EU suggestion, pensioners would be left facing the adverse consequences. Webb viewed the draft measures as potentially "devastating" and "harmful to businesses' ability to invest".
The revised IORP directive is expected to be introduced in the autumn, albeit without the stringent funding and solvency requirements. Although Michael Barnier, European Commissioner for Internal Market and Services, has confirmed that the solvency proposals have been side-lined, it is unclear whether they will re-emerge next year after further consideration from the Commission.
For now, Solvency II is being left as an "open issue", but there are many hoping that it won't resurface in a hurry.