The European Commission has now acted to extend the transitional relief for EU pension funds, a decision informed by the report commissioned by the EC from Bourse Consult and Europe Economics (see posting of 4 February), which assessed the potential cost to pension funds’ investment returns of mandatory clearing of OTC derivatives.
The extension gives pension schemes an additional two years exemption (till August 2017) from the requirement to clear OTC derivatives. However, this is still transitional relief. Ultimately, pensions schemes will be obliged to clear derivatives.
The two year extension provides a breathing space for the industry to develop solutions to enable pension schemes to post variation margin at a lower cost to investment returns. A number of possible solutions are set out in the report, but so far there is little evidence that any investment is being made in developing them. The clock is now ticking.