Minimum solvency provisions for pension schemes dropped from forthcoming European legislation (IORP II)

In good news for employers, the European Commission (the EC) has dropped proposals that could have resulted in a dramatic increase in contributions to defined benefit pension schemes - at least, for now.

The first directive dealing with pensions, the IORP Directive (Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision), was enacted in 2003 and since that time, the EC has been looking at what further measures should be brought in relating to pensions under a second directive, known as IORP II.

One particularly controversial proposal has been to require pension schemes to have similar requirements for funding as insurance companies, so that IORP II would be consistent with the funding provisions under the Solvency II Directive relating to insurance. The UK defined-benefit pensions market has been particularly concerned about this aspect, which would dramatically affect the shorter term cost of pension schemes, and place them under the same obligations on funding as those applicable to commercial long term insurance business, simply because they provide pension benefits for employees…

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