The European Commission has decided to put on hold plans for strict capital adequacy rules on workplace pensions that would have put many people’s retirement at risk.
They would have deterred pension funds from investing in long-term investment vehicles like private equity funds because they would have to hold a disproportionate amount of capital to do so.
These solvency rules were part of an overhaul of rules for occupational pensions as part of revisions to the Institutions for Occupational Pensions (IORP) Directive.
But pension funds need the strong returns private equity can make in order to pay for our pensions in the future, especially because Europe has an aging population. (Read more here).
It could stop much-needed investment into European businesses by private equity funds as well – and this at a time of crisis!
The EVCA has long argued for a different, less volatile approach to pension reform, along with our partners in the Group of Eight .
We weren’t the only ones- UK pensions minister Steve Webb warned that imposing solvency rules on IORPs would be “devastating.”
Fortunately the European Commission listened and Internal Market Commissioner Michel Barnier announced the rules would be dropped for the time being (read his speech here).
EVCA Secretary-General Dörte Höppner welcomed the news. “As a driving force in this crucial debate we are pleased that the European Commission has decided to give this important issue more time and thought,” she said.
Matti Leppälä, PensionsEurope Secretary-General and CEO said: “The European pension funds and other IORPs have to be able to contribute to the growth of European economy and employment and the solvency rules have to enable this.”
This is an encouraging step in the right direction. We at the EVCA now hope that it is repeated in Solvency II – the long-delayed capital regulation for insurers. Insurers are another vital investor in private equity.
Lighter capital requirement for investments by long-term investors, like insurers, into long-term asset classes like private equity funds can help revitalise Europe’s economy and insurers meet their liabilities.
You can read more about long-term investing here and more about the relationship between private equity funds and pensions here.