EC rules could make pensions unaffordable, warns lawyer

Leeds-based Catherine McKenna, who is head of Squire Sanders’ global pensions team, warned that EC proposals to impose Solvency II-style requirements on pension plans would have a “drastic impact” on the EU economy.

Solvency II is a new European regulatory regime for insurers, which aims to protect policyholders’ interests, and the stability of the financial system, by making firms less likely to fail.

According to the Association of British Insurers, (ABI) Solvency II aims to promote a more sophisticated approach, including firm-specific internal capital models.

It is part of a strategy to make it easier for firms to do business across the EU.

The European Commission is working with a number of stakeholders, including the ABI, on the draft measures. The new regulatory framework is expected to start on January 1, 2013.

Ms McKenna warned that the EC plans could have a wide-ranging impact on the pensions industry, and companies must study the proposals in detail.

She said: “If the current proposals are enacted, and companies are forced to increase capital assets in their plans to support liabilities in what are essentially voluntary plans, many plans and many of the corporates sponsoring them would simply become unviable – pensions could become unaffordable. Insurance company capital requirements are simply not appropriate for private pension provision.

“Some aspects of Solvency II are less visible at the moment, but could still have a major impact on the way in which pension arrangements are managed, including the standards of governance and management of risk. The development of the proposals will be keenly monitored and assessment of their impact should be moved up the priority order for many companies.”

The Squire Sanders pensions team has 60 fee earners, and Ms McKenna said she wanted to develop the team in terms of “quality and strength in depth, not size”. In May, Squire Sanders won the Pensions Law Firm of the year award at the Pension and Investment Provider Awards.

Ms McKenna said: “We plan investment in key growth areas as a whole across the team, but that said, in Leeds, we are adding a new partner, Anthea Whitton, to our team in September, and anticipate continued growth over the next few years.”

The Squire Sanders name is a relatively new arrival on the Yorkshire legal scene. US law firm Squire, Sanders & Dempsey completed its merger with Hammonds in January last year to create one of America’s largest legal practices. The deal, originally announced in August 2010, saw the former head of the Leeds office, Jonathan Jones, take a seat on the global management board. He was one of five legacy Hammonds partners on the board of 13.

Hammonds had strong roots in Yorkshire. It was founded as a one-man firm in Bradford in the late 19th century by Albert Hammond. The Yorkshire operation, which has 266 staff in Leeds, adopted the Squire Sanders name earlier this year.