European pension funding: A small victory in a bigger war

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More common sense, along the lines of the EC reversal of proposed pension-funding rules, needs to prevail in financial services regulation.

Faced by a barrage of post-crisis regulation, the financial services industry at least won one small but important victory last month when the European Commission shelved new solvency rules for occupational pension schemes.

Proposed rules would have required schemes to hold much more money in reserve, something that the industry warned could have caused every remaining contributory scheme in the private sector to close.

The EC has called on countries with underfunded pension schemes to take measures to address their solvency but said it will not now include solvency rules in the new pensions directive, the Directive on Institutions for Occupational Retirement Provision (IORP) effectively kicking the rules into the long grass for now.

This has of course been welcomed by the pensions industry. James Walsh, who leads EU and international policy at the UK’s National Association of Pension Funds, summed up the views of many when he said: "The great diversity of pension systems across the EU makes it very difficult to devise a ‘one size fits all’ system. We welcome [internal market and services] commissioner [Michel] Barnier’s sensible decision not to go ahead with new rules on pension scheme funding."

But it should be cheered by the financial services industry more broadly as an indication, albeit a solitary one, that common sense can prevail in the conception of new financial regulation.

A large dollop of this common sense is needed with regards to the financial transactions tax. A blanket minimum flat-rate tax of 0.1% on the gross market value of all cash-based stocks, bonds, repos and securities lending on trades in the 11 EU member states that have so far signed up to this is at best misguided and at worst destructive.

Sense in the design and implementation of the new financial regulations across the board should be allowed to prevail. If it doesn’t, the consequences might be catastrophic.