Solvency II and UK pensions

The following Pensions practice note provides comprehensive and up to date legal information covering:

  • Solvency II and UK pensions
  • What is Solvency II?
  • The aims of Solvency II
  • The impact of Solvency II on UK pensions
  • Aborted attempts to extend Solvency II to pension schemes
  • Holistic balance sheet recommendations
  • EIOPA recommendations dropped from IORP II
  • Is there scope for a future Solvency II-style pension funding regime?
  • Post-Brexit review of Solvency II in the UK

Solvency II and UK pensions

What is Solvency II?

Solvency II is a European risk-based solvency capital regime which provides a harmonised prudential framework for insurance and re-insurance companies. This regime consists of the Solvency II Directive 2014/17/EU (OJ L 60/34) (Solvency II) and a set of regulatory technical standards (RTS) and non-binding guidelines, including Commission Delegated Regulation (EU) 2015/35 (the Solvency II Delegated Regulation). Solvency II became applicable on 1 January 2016. Solvency II was transposed into UK law by the Solvency 2 Regulations 2015, SI 2015/575, and through the Prudential Regulation Authority (PRA) Rulebook and supervisory statements.

Solvency II replaced Solvency I to modernise European solvency standards (many of which dated back from the 1970s). It requires a robust risk management and governance management for insurers and re-insurers across the European Union (EU). The Solvency II supervisory regime consists of three pillars:

  1. Pillar I (Calculation of capital reserves) outlines the standard formula insurance companies across the EU have to use for the calculation of their capital reserves covering all types of risks

  2. Pillar II (Management of risks and governance) contains the requirements for the management of potential risks and for governance

  3. Pillar III (Reporting and disclosure) describes the information and reporting insurance companies across the EU have to submit to the national supervisor and disclose publicly

While Solvency II did not become retained EU law on

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