Analysis published by the European Insurance and Occupation Pension Authority (EIOPA) today indicates that going ahead with new Europe-wide rules for calculating pension deficits could add £150 billion to funding targets for UK schemes, according to Towers Watson. However, EIOPA has cautioned that these results are “highly uncertain” and could “change considerably” if a key assumption were amended.
The preliminary results from EIOPA’s Quantitative Impact Study (QIS) indicate that, on one set of assumptions about how calculations under a revised Pensions Directive could be made, UK pension deficits would have been €527 billion (£449 billion at today’s exchange rates) at the end of 2011, compared with an estimated €350 billion (£299 billion) under current funding rules.
Mark Dowsey, a senior consultant at Towers Watson, said: “These results only estimate what new EU-wide rules might do to measured pension deficits. Much of the impact would depend on what had to be done in response and within what timeframe.”
EIOPA’s publication warns that: “A number of aspects of the QIS were found to be very sensitive to the inputs, and further analysis is needed”, that its results “should be treated with caution” and that additional work it is now carrying out “would have to be tested in follow-up QIS exercises”. Meanwhile, the Pensions Regulator has responded to the report by saying that “the analysis published today by EIOPA will assist the [European] Commission in considering whether to make a proposal and what provisions to include” (emphasis added).
Mark Dowsey said: “Regulators in the UK and other European counties appear to be warning the European authorities against producing directives in haste and repenting at leisure. If the Commission embarks on a race against the clock to get a directive nailed down before Commissioners change jobs next year, there will almost certainly be important details that have not been thought through.”
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