Applying Solvency II-type rules for pension funds in Europe could add millions to scheme deficits, with Irish pension funds particularly hard hit.
A report by the European Insurance and Occupation Pension Authority (EIOPA) says adding a solvency capital requirement for pension schemes of the kind that will be mandated for insurance companies under Solvency II law would cause deficits for Irish schemes to grow to 81% of liabilities or more.
Pension schemes in Belgium, Germany, the Netherlands, Norway and the UK would also be in deficit, with Sweden the only country where pension schemes would have a surplus under the solvency capital ratio.
The results will concern scheme sponsors, which may be called on to meet the shortfalls. The EIOPA says applying the new rules in the UK alone could cost schemes €177 billion.
However, EIOPA says the results should be treated with caution as they are highly uncertain and would change if key assumptions were amended.
“These results only estimate what new EU-wide rules might do to measured pension deficits,” says Mark Dowsey, a senior consultant at pensions adviser Towers Watson. “Much of the impact would depend on what had to be done in response and within what timeframe.”
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