"No compromise" on pension solvency requirements from UK, minister says

Speaking on his return from Europe, where he had met politicians and pensions experts in the Netherlands and Denmark, Webb warned that a 'one size fits all' model for pensions across all 27 EU member states would impose "massive burdens" on UK businesses.

"It is unbelievable the Commission is pressing ahead with these pointless proposals which would cost UK employers with final salary schemes hundreds of billions of pounds and lead to [defined benefit] scheme closures," he said. "We will not let up until we make the Commission see sense."

The European Commission has proposed the introduction of risk-based supervision and more stringent solvency requirements for pension providers as part of its revised Institutions for Occupational Retirement Provision (IORP) Directive, due next summer. The new system should, it has said, be compatible with the solvency requirements due to come into force for insurers from 2014 under a regime known as Solvency II "to the extent necessary and possible".

If enacted, the changes would apply to all private sector companies offering defined benefit schemes, which are schemes that promise a set level of pension once a member reaches retirement age. Although defined benefit pension schemes are on the decline they still represent around half of the private pension assets in the UK according to Government figures, with combined liabilities of approximately £1,200 billion.

The potential introduction of Solvency II-style standards for pension funds has been met with outcry from many in the UK pensions industry, with research by industry body the National Association of Pension Funds (NAPF) suggesting that such a requirement could cost UK businesses an extra £300 billion. The Commission has claimed that the new rules are necessary to ensure a "level playing field" between insurance companies, which sell pensions in various EU member states, as well as protect the pension savings of cross-border workers.

However the UK already has strict protections in place for occupational pensions, including a Pension Protection Fund (PPF) which will pay out to scheme members in the event of an employer's insolvency. In addition, the Government has argued that there are "fundamental differences" between insurance products and pensions, while the Commission's own studies show that only 1.5% of workers live in a different member state from their country of origin.

European regulator the European Insurance and Occupational Pensions Authority (EIOPA) has proposed a 'holistic balance sheet' approach to ensure that pension funds across Europe meet similar solvency requirements regardless of whatever national security mechanisms are in place. Last week the Pensions Regulator urged the UK pensions industry to "play a full role" in a consultation process, published by EIOPA, which will enable it to consider the value of various aspects of this balance sheet before it carries out an impact assessment on the proposal for the Commission in the autumn.

Webb added his encouragement to the calls for stakeholders to respond to the consultation, and added that the European Commission should concentrate on "real pension challenges" such as increased life expectancy. The UK planned to provide "sustainable and adequate provision for the future" by raising the state pension age, introducing workplace pension reforms and a single-tier state pension, he said.

"While Brussels is fiddling, Britain is putting reforms in place to keep our pension system sustainable in the future," he said. "We need to work together across Europe to tackle the real pension challenges we all face, and we need to think about how the risks of pension provision are more evenly shared by employer and employee so we can give people more certainty about what pension they will get."

Pensions law expert Robin Ellison of Pinsent Masons, the law firm behind Out-Law.com, applauded Webb's comments, saying that the minister was "proving himself to be one of the pensions ministers of the century". He added that there were signs that the Commission was "beginning to buckle under the onslaught" of the opposition to the proposals.

"Webb can also make a grand alliance with other jurisdictions who are also unhappy, such as the Irish and the Dutch, and those who do not really care - such as the Germans whose book-reserve schemes are categorically outside the scope of Solvency II," he added. "Whilst he is on such good form, he may also want to tackle the issue of accounting standards which have already done much harm, in a similar fashion to the proposed Solvency II requirements."