Five major business and investment federations are urging the European Commission to reconsider a proposal to subject pensions to major parts of Solvency II rules, saying it could "impede growth and job creation", and endanger the security of retirement savings at a time Europe's indebted governments can least afford this.
Five major business and investment federations are urging the European Commission to reconsider a proposal to subject pensions to major parts of Solvency II rules, saying it could “impede growth and job creation”, and endanger the security of retirement savings at a time Europe’s indebted governments can least afford this.
The group voiced its concerns on the day Michel Barnier, European Commissioner for internal market and services opens a public hearing to review how Europe’s pensions are regulated.
It is dangerous and “fundamentally flawed” to apply Solvency II, primarily evolved for private sector insurers, to Europe’s pension plans, the objectors said.
They are the European Venture Capital Association, the European Fund and Asset Management Association; the European Association of Paritarian Institutions; business representatives BusinessEurope; the European Centre of Employers and Enterprises Providing Public Services; and the European Federation for Retirement Provision.
Hitting pensions with risk-based capital requirements and new valuation methods would “oblige pension funds to build up higher reserves, raising the cost to employers of providing occupational pensions”, they said in an open letter.
Defined benefit schemes would divert money away from growth-enhancing investments.
In de-risking their assets, pensions would be stopped from playing a major role of providing capital to companies “to create growth and jobs”.
Finally, the proposal would mean all major long-term investors would act in similar ways, “increasing volatility and contributing to systemic risk”.
The group said: “Pension schemes are fundamentally different from insurance products due to their long-term liabilities, the absence of competition between pension schemes, their generally not-for-profit nature, and because mechanisms exist to adjust contributions, indexation or benefits over time, if needed.
“The European Commission’s ‘same risks, same rules’ argument to create a ‘level playing field’ between pension funds and insurance companies is therefore fundamentally flawed.”
Dörte Höppner (pictured), EVCA secretary general, said: “Pension schemes that guarantee a secure income for millions of Europe’s pensioners, are also an important source of capital for long term investors such as venture capital and private equity, which in turn generate income for pensioners by investing in innovation and growth. Applying Solvency II to pension schemes would severely jeopardise this virtuous circle of value creation.”
Claude Kremer, president of the European Fund and Asset Management Association, added strong evidence existed that applying Solvency II rules to pensions would increase administrative burdens and financial costs for the plans and employers, discouraging employers to set up defined contribution schemes and accelerating defined-benefit scheme closures.
“This would be an undesirable consequence, and one to be avoided, especially at a time when the authorities’ goal should be to put more emphasis on the engagement of EU citizens towards pensions in general,” Kremer said.
Philippe de Buck, director general of BusinessEurope, agreed that the proposal would make pensions too expensive for many companies, while Bruno Gabellieri, secretary general of the European Association of Paritarian Institutions, said “social partners should be allowed to steer the promises they make, rather than be imposed extra capital costs, which are a burden for the employers”.
Ralf Resch, general secretary of the European Centre of Employers and Enterprises providing Public Services, echoed this view, and added: “Nothing would be won in terms of security for members in the schemes”.
Matti Leppälä, Secretary General, European Federation for Retirement Provision, said the EC’s proposal “jeopardises the future of pensions in Europe”, because IORPS would de-risk their assets, and employers would find it very expensive to continue funding pension schemes.