Pension schemes face sweeping EU rules

The European Commission wants to apply tough new capital requirements to pension schemes across the 27 nation bloc and create an EU-wide pension protection fund.

According to the commission, stakeholders from across different member states want a new solvency regime for pension funds, similar to the 'Solvency II' rules being implemented for insurers.

The commission's green paper said: ‘The Solvency II approach could be a good starting point, subject to adjustments, to take account of the nature and duration of the pension promise, where appropriate.’

The suitability of Solvency II for pension funds would be considered in a ‘rigourous’ impact assessment, focusing on how it would effect the price and availability of pension products.

The paper also suggests an EU-wide guarantee system similar to the UK's Pension Protection Fund (PPF).

‘Reflecting developments in banking, insurance and investment, there is a need for promoting pension benefit guarantee systems in the member states, possibly co-ordinated or facilitated at EU level.’

‘Such systems can not only address failures in sponsor-backed defined benefit schemes or book reserve schemes, but could also compensate for excessive losses in defined contribution schemes. There are, however, important aspects to address such as moral hazard and potential implicit public support in very turbulent times.’