Changes to the European rules governing the pensions and insurance industries could harm UK businesses and damage the countrys economic growth, Labour said today.
Chuka Umunna, the shadow business secretary, and Rachel Reeves, shadow chief secretary to the Treasury, warned that new rules for the insurance industry, Solvency II, could damage the competitiveness of UK insurance companies outside the European Union.
UK insurers' overseas subsidiaries would have to hold more capital than locally-based competitors in many countries, putting them at a 'competitive disadvantage', they explained In a letter sent to the business secretary Vince Cable and chief secretary to the treasury, Danny Alexander,
Solvency II could also reduce investment in infrastructure projects by restricting the level of BBB-rated bonds that insurers could hold as well as introducing 'punitive' treatment of corporate bonds that would deter insurers from investing in them, making it harder for businesses to access funding.
The planned revision of the Institutions for Occupational Retirement Provision Directive also 'risks damaging UK growth', the letter said.
Basing the revision of the legislation on Solvency II requirements fails to take into account the differences between pensions and insurance, they wrote. 'We have been told that this could force UK businesses to divert hundreds of billions of pounds away from business investment, growth and job creation to quickly plug gaps in pension provisions,' the letter stated. 'There is a real risk that this could push many UK businesses into insolvency.'
Reeves and Umunna called on the government to detail what assessment it has made of the impact both Solvency II and the IORP Directive revision would have, in particular in relation to UK infrastructure investment.
Progress has been made in changing the Solvency II proposals, but action is still needed to amend the proposals before transitional measures are introduced on January 1 2013. Full requirements under the rules are set to come into effect a year later.
Ministers should also outline what steps they have taken to build a 'coalition' with other European countries which share the UK's concerns over the proposals for the IORP Directive. In June, pensions minister Steve Webb said there would be 'no compromise' over the UK's opposition to any plans to implement 'Solvency II for pensions' as part of the revision.
Reeves and Umunna highlighted the letter sent by pension funds, business leaders and trades unions earlier this year warning of the potentially 'catastrophic' impact that this kind of change to pensions regulation could have.
'What action is the government taking to bring together the wide interests that have concerns about the proposals, to put the UK's case most effectively - not sabre-rattling for sabre-rattling's sake, but a constructive engagement to get the best outcomes for the UK?' the letter asked.
'We...urge you to work constructively with ourselves, businesses and industry, and the trade unions to make the case with other UK governments to address these concerns and ensure well-intentioned changes do not harm UK and EU jobs and growth,' it added.
COMMENTS
I'm afraid that this looks like a case of ignorant comments by ignorant politicians. The global trend is towards more effective regulation of capital requirements and many countries have or are adopting regimens that are similar to S2. Where the regulation is lax this should be reflected in agency ratings. Rather ensure that those promising cover are well-capitalised, well managed and are thereby in a position of competitive strength against the "cowboys".
Richard Montgomery, Director, SRMS - 30/08/2012
In what sense are these comments ignorant? According to my understanding of Solvency II the points made are correct. Richard Montgomery may not agree with the conclusions but that is no reason to try to dismiss them with rudeness.
Mike Ward, Independent Actuary - 31/08/2012
I think one of the salient points is insurance & pensions business have very different characteristics and shouldn't be shoe-horned into "one size fits all" regulation. A clear example is when bonds are bought to back fixed guaranteed liabilities in a DB pension scheme. The market price of bonds is irrelevant. The intention is to hold them until maturity. Forcing an employer to increase contributions due to depressed bond prices unneccesairly diverts capital from being invested in the economy
Wes Hughes, Director - Opal Actuarial - 03/09/2012
