Total DB Employer Contributions Could Quadruple Under Solvency II

03 October 2012 (PLANSPONSOREurope.com) – Total UK employer contributions to defined benefit pension (DB) plans could swell to £119.6bn if proposed Solvency II legislation is implemented in a worst case scenario, according to LCP research.

Following yesterday’s publication of the European pension authority EIOPA’s quantitative impact study (QIS) technical specification document, Jonathan Camfield, partner at LCP condemned the document as “very complex”, which attempts to put a value on a company’s financial strength in a “mechanistic way”.

He added this would result in “meaningless” figures for many companies who support pension schemes. 
According to Camfield while EIOPA and the EC remain cagey over whether sponsors would need to pay in additional contributions as no decision has been made a worst case scenario could see liabilities quadruple along with employer contributions.

Given the latest figure on total UK private sector employer contributions to DB plans has now reached £29.9bn this figure could reach £119.6bn.

Camfield told PLANSPONSOR Europe: “In the worst case scenario that IORP II came into play very quickly and it substantially reflected Solvency II requirements then you can estimate the sort of contributions by the following logic.

“Reported deficits in the UK for funding purposed are of the order of £200bn which might increase to £700 or £800bn so contributions in a worst case scenario could quadruple,” he said.

But Camfield added: “That is a worst case scenario and no-one in envisaging that is imminent but that illustrates the worst case scenario direction of travel.”

PLANSPONSOREurope Staff
editors@plansponsoreurope.com