EUROPE - Lars Rohde, chief executive of the DKK349.3bn (€46.8bn) Danish ATP pension fund, today defended calls for Solvency II requirements to be applied to pension funds, by arguing it is a way of making it clear "risk is in short supply".
"I'm an endangered species, at least in pensions land, because I'm a true believer in Solvency II," he said, adding pension systems are essentially about the distribution of risk.
Rohde told delegates during a panel discussion at the EDHEC conference in Paris today that proposed pension funds should be included under the Solvency II regime "because it makes it obvious that risk is in short supply".
Rohde made the remarks following a presentation by Japp Maassen, first vice-chairman of the European Forum for Retirement Provision (EFRP) and a member of the executive board of APG - the investment arm of the €216bn ABP pension fund - who argued against applying a solvency regime for insurer and pension funds combined.
"I once called Solvency II ‘a devil in disguise' and I will stay with that, as the short-term prudential constraints conflict with financial stability while nominal constraints may compromise real pensions ambitions, namely an indexed pension," said Maassen.
"Solvency II does not allow for inter-generational risk-sharing and does not recognise future contribution increase or benefit decreases as an alternative to solvency capital," he added.
According to Maassen, there are advantages to a risk-based framework for pensions which embrace market valuation but a one-year solvency requirement is not the best solution for risk-based pension funds.
He concluded by repeating his plea for a separate regulatory solvency regime for pensions, which sits outside the existing IORP directive.
Rohde called Maasen's remarks "provocative", and added: "If you, for the sake of argument, disregard any kind of regulation, what would the asset allocation of pension funds look like if we only take into account the way our stakeholders want us to behave?"
He continued by noting some well-known companies in the US and UK, such as General Motors and Ford, are struggling with pension liabilities from the past and argued the present workforces' competitiveness is destroyed to some extent by these commitments to the past.
Rohde concluded it is necessary to have strict and explicit solvency rules explaining what will happen "if and when the perfect storm arises and forces the pension fund to act".
These new comments from the Paris discussion follow two calls earlier this week from the French government and other pension fund officials, who argued Solvency II should be applied to both insurance firms and pensions funds. (See earlier IPE stories: Dutch support emerges for Solvency II U-turn and France presses call for Solvency II on pensions)
In response to these arguments, Nigel Peaple, director of policy at the UK's National Association of Pension Funds (NAPF), told IPE: "It is of great concern that French Government officials and others, despite all the evidence, continue to pursue an agenda which would lead to the rapid closure of salary related pension schemes across many parts of Europe, including the UK.
"Company pension funds are different from insurance-based pensions in a number of different ways and so a different regulatory approach is needed. This is why the EU association for company pensions, EFRP, recently produced a report explaining why pension funds should continue to be regulated under the IORP Directive," said Peaple.
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