Occupational pension schemes do not have to comply with the solvency requirements applicable to life insurers. However, EU Commissioner McCreevy has said that, as part of the review of the IORP directive in 2008, the EU should consider whether occupational pension schemes should be subject to a similar regime as that applicable to life insurers.
According to Jason Coates, pensions partner at Wragge & Co LLP, this could have a significant impact on UK companies with large defined benefit schemes. They could be asked to reserve for pensions liabilities on their balance sheets to “back” equity investment in their schemes.
Coates explains: “The UK implemented IORP in such a way that defined benefit schemes must fulfil the new scheme funding requirements. These do not refer to insurance type provisions. In the past a number of European regulators of insurance and pensions industries have sort to harmonise the two regimes. Mr McCreevy’s comments suggest that a review of the position is a reality and a change a possibility.”
The Commission is undertaking a fundamental review of the directives affecting life and non-life insurers and reinsurers. While it expects to publish a formal framework directive in summer 2007, implementation is not expected before 2010. In addition, the Commission is going to begin a review of the IORP directive in 2008.
Coates continues: “Traditionally, the UK has taken a different attitude on funding pension schemes to some other EU Member states. It has not stipulated the nature of the assets in which schemes can invest. Instead, schemes need to ensure that they have sufficient assets to meet liabilities. In contrast, many European jurisdictions have treated pension schemes more like insurance companies and have imposed stringent investment and funding codes.”
“UK companies should be concerned at any hint that they will be forced into accepting insurance solvency requirements for their UK pension schemes. Relevant stakeholders need to work to safeguard the position of UK companies in this respect.”