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Lost in translation (fortunately!)
The pensions world breathed a sigh of relief last month when the European Commission dropped plans to include solvency requirements in its updated Directive on occupational pensions, the so-called “Solvency II”.
The Commission had issued a White Paper in February 2012 which would have required UK pension schemes to increase their funding levels by about a third, as it treated UK final-salary schemes as if they were commercial insurance companies. In fact (as all true Britons know) UK final-salary schemes are an entirely different kettle of fish.
The original problem arose because the Commission refers in its Directives to “institutions”. This has been sloppily translated by a UK Parliamentary draftsman as “pension scheme” in the UK legislation. However, if you go back to the Directives themselves, they sometimes use the terms “institution” and “pension scheme” in the same sentence, and under the laws of legal interpretation they therefore cannot be the same thing. From the context you can see that what the Commission meant by “institution” was clearly an insurance company, or perhaps an industry-wide federation.
Fortunately the UK pensions industry raised enough of a stink to make the European Commission think again. The Directive will now be issued, but without any solvency requirement. The Commission says “further technical work on the impact of any solvency requirements” is needed.
I believe that the Commission will finally take the point that UK pension schemes cannot be treated as if they were insurance companies, and will make a specific exception for them. One thing is certain – raising the funding levels of all UK final-salary schemes by a third would kill them all off instantly. The European Commission will not want that on its conscience.
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