Solvency II and what it means for defined benefit schemes

More European legislation on the horizon?What is likely to happen?A good deal of uncertainty still surrounds the proposal to apply Solvency II to UK pensions.The EU has indicated that the proposals could at least be watered down. Whilst the whitepaper on pensions produced by the EC suggests it will continue to work on legislation for thepensions industry (IORP) it has said that this does not necessarily mean pensions will besubject to the exact same rules as Solvency II. The EU has said Solvency II has caused themto look at pensions but it does not mean they will copy it.The current EU proposals relieve DB pension funds from the need to provide a capital reservebuffer. Instead a “holistic balance sheet” approach is proposed. EIOPA favours allowingsponsor covenants and Pension Protection Fund guarantees to be taken into account in theholistic balance sheet approach. A press release says this will “enable IORPs to take intoaccount the various adjustment mechanisms (conditional indexation, reduction of accruedrights) and security mechanisms (regulatory own funds, sponsor support, pension protectionfund) in an explicit way.”The full details of this holistic balance sheet approach are still open to discussion and yet to befully finalised.The new proposals have done little to stem the flow of criticism for the wholeidea and political pressure could still result in the proposals being shelved orat least further amended before they are implemented.Find out moreIf you would like to discuss the content of this briefing note and how it will impact yourorganisation, please contact:Gary Crockford, Techical Services Manager.+44 (0)20 7429 1274 or gary.crockford@buckconsultants.comInformation contained in this briefing note is of a general nature only; it represents our understanding of current (andproposed) law and practice but should not be relied upon as advice in any specific situation.© 2012 Buck Consultants Limited. All rights reserved2