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Eversheds comment: Prospect of holistic balance sheet for pensions presents real threat to UK plc

  • Global
  • United Kingdom

    26-01-2016

    The European Insurance and Occupational Pensions Regulator, EIOPA, published the results of its stress tests for occupational pension plans throughout Europe today. Commenting on the results, Francois Barker, Head of Pensions at law firm Eversheds, says:

    “As EIOPA’s report recognises, the current macro-economic environment poses significant challenges for defined benefit pension plans throughout Europe. Unsurprisingly, the results of the stress tests show that a prolonged period of low interest rates would pose significant challenges to the resilience of such plans. More significantly, they confirm that EIOPA’s proposed holistic balance sheet methodology for assessing the solvency of defined benefit plans would add £350bn to Europe’s occupational pension deficit overnight. This would torpedo the European economy. With much of the pain being felt in the UK, Ireland, Belgium and the Netherlands.

    "The UK Government, together with its European partners, has managed to prevent the holistic balance sheet from being introduced in the new IORP Directive which is currently going through the European Parliament. However, the threat remains. The timing of EIOPA's announcement could bring the issue back on to the agenda in the European Parliament. EIOPA is also due to advise the Commission on how it thinks the European solvency regime for defined benefit pension plans should be developed later this year.

    "EIOPA could recommend a new reporting requirement be introduced for European defined benefit plans to require them to report their funding position on the holistic balance sheet basis to national regulators. Not only would this be a costly exercise in itself, it would also make a switch to the holistic balance sheet as the solvency measure for defined benefit plans throughout Europe a lot more likely. The UK Government and UK employers should remain alive to this and monitor developments.”

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