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EU's financial chief seeks to calm pension fears
March 1, 2012 / 12:21 PM / 5 years ago

EU's financial chief seeks to calm pension fears

* Insurance rules won't be copied in full onto pensions

* EFAMA fund lobby welcomes Barnier's flexibility

BRUSSELS, March 1 (Reuters) - Tough European Union capital rules for insurance companies won't be "copied and pasted" on to work pension schemes, the EU's financial services chief said on Thursday in a bid to calm employer fears of spiralling costs.

Michel Barnier is drafting a reform of EU rules on occupational pensions, known as IORP, which the sector fears will mean new costly capital requirements to cover risks.

Business and pension industry lobbies accused Barnier of triggering unintended consequences on the multi-trillion euro pensions sector and wider economy at a time when an ageing population is making pension provision harder.

"I have never said or implied that pension funds could be subject to exactly the same rules as those set out under Solvency II," Barnier told a European Commission hearing on his planned reform in Brussels on Thursday.

Solvency II refers to tough new capital requirements for insurers from 2014, which require them to hold large enough safety buffers to better match risks on their books.

But Barnier wants more cross-border competition in occupational pension schemes to bring down costs, tighten supervision so that risks are properly covered by capital requirements, and transparency is improved for pensioners.

The European Fund and Asset Management Association (EFAMA) has said applying the insurance rules to pensions would discourage employers from setting up salary-linked schemes and opt for less generous plans that depend on stock market performance.

"I want to state very clearly that I have no intention of penalising either pension funds or insurance companies," Barnier said.

Barnier's draft reform, once published, will need approval from EU states and the European Parliament to become law.

"Of course we want to see the text but Barnier has been quite reassuring. This was a great opening. It was quite positive," EFAMA Director General Peter De Proft told Reuters after the EU commissioner's speech.

Barnier warned that all pension funds face extra scrutiny.

"We are going to propose a regulatory framework specifically for pension funds, but this will not be done with a 'silo mentality'. We must draw on the rules developed in other financial sectors, in particular some useful aspects of Solvency II," Barnier said.

Currently only 84 of the 140,000 pension schemes in Europe are cross border, Gabriel Bernardino, chairman of the EU's European Insurance and Occupational Pensions Authority (EIOPA) told the hearing.

Barnier said when pension funds themselves underwrite risks, solvency rules must take into account how the funds can reduce those risks, an assessment which was not being done at the moment.

It was also important to be able to compare the financial health of pension schemes across the EU, whether they are subject to capital requirements or not.

"We therefore intend to develop a common prudential tool for all pension funds in order to evaluate the financial positions of these funds," Barnier said.

Some final-salary linked schemes are in the red and Barnier said it would not be feasible immediately to apply stricter rules to outstanding liabilities.

"We must therefore find alternative solutions, including appropriate transitional arrangements," Barnier said.

Bernardino told the hearing that continuing to use valuations and risk assessments on pension schemes that deny economic reality was not the answer. But he agreed with Barnier that phase-in periods would be needed for existing schemes. (Writing by Huw Jones. Editing by Jane Merriman)

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