Commenting on today's consultation published by European Insurance and Occupational Pensions Authority ("EIOPA"), Jonathan Camfield, partner at LCP said:
"EIOPA has indicated its view that it is not a case of whether something like Solvency II will be imposed on occupational pension schemes but rather how it will be imposed. It is no exaggeration to say that this has the potential to be catastrophic for DB pension schemes and equity markets in the UK. Total funding requirements could increase significantly - for example by £500 billion - which could lead to company insolvencies as cash calls rocket.
The only silver lining is that EIOPA has recognised that there are important differences between pension schemes and insurance companies, and has suggested that one way forward might be to have a two tier approach to funding pension schemes across Europe, with the implication being that the UK would be able to continue with something closer to its current regime, at least in the medium term. However, even if this were to be the case (and it is only one option and it could be strongly resisted by other countries), EIOPA is recommending that a complex 'holistic balance sheet' would need to be produced for each pension scheme, showing the difference between this approach and a Solvency II style approach, and also putting a financial value on things such as the strength of a sponsor's covenant.
Responses to the consultation are invited by 2 January, and we now expect there to be an intense period of lobbying by representative bodies and sponsoring companies in the UK."
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