AUSTRIA - Pension funds should "up their game" when it comes to risk management and take a more holistic approach, according to Chinu Patel, independent actuary and member of the Groupe Consultatif Actuariel Européen.

"Pension funds should think about raising their game in risk management - either this or wait for the regulators and politicians to give them more to moan about through a detailed set of rules in IORP II," he told IPE after he had held a speech at an actuarial conference in Vienna last week.

He also hinted that the EU's stance on Solvency II might now be different had pension funds tackled risk management years ago.

Together with Malcolm Kemp, fellow actuary and Groupe member, Patel has written a paper on the application of a holistic 'entity risk management' (ERM) on pension funds.

"We found that the current approach commonly applied in ALM is too focused on investment and could be realigned to incorporate more ERM principles of the type practiced in banking and insurance," Patel said.

He added that "more rigorous" governance practices in pension funds and sponsoring companies could be beneficial.

"For many firms that already have some form of ERM in place, an initial step might be to extend the governance and risk management function in what may already be an effective framework for decision-making in the core business to incorporate the pension subsidiary," he said.

He also stressed that the pension industry should not dismiss the Solvency II framework despite their differences with insurers, but look at it in detail and extract useful parts.

One area of overlap that might hit any pension scheme, even if it is "not currently regulated in a manner akin to insurance undertakings", is a closure of the scheme.

Patel said: "Then it may well need at some stage to transfer some or all of its liabilities to an insurer that is subject to Solvency II-style rules (or successor rules)."

The authors also said there appeared to be a trend toward greater harmonisation of pension fund and insurance regulatory frameworks and that some form of Solvency II-style regulatory framework "may in due course be imposed on them".

"We therefore think," they added, "that (EU) pension funds would be wise to analyse and consider the types of risk management disciplines that will be introduced under Solvency II.

"Doing so may both help them improve their current risk management frameworks and also be a good way of planning for possible regulatory changes that may come their way in the next few years."

In other news, three-quarters of young Austrian employees want their employer to offer an occupational pension scheme, and half are prepared to make additional contributions themselves toward such an arrangement.

A poll among 1,000 employees under 30 commissioned by the Austrian pension fund association FVPK showed 75% of young people are afraid they will not receive a sufficient state pension when they retire, with a significant majority thus counting on occupational pension schemes instead.

Herbert Kling, chief executive at meinungsraum.at, which conducted the survey, said: "The study shows the young generation sees occupational pensions as an option for an improved retirement provision."

He added that almost 70% would like the government to subsidise occupational pensions.

FVPK head Andreas Zakostelsky pointed out that including pension arrangements in collective agreements for certain industries would help their proliferation.

Half of the polled employees would consent to second-pillar contributions being a mandatory part of the salary.

However, 45% still would prefer a raise over pension contributions, which the pension industry puts down to a lack of information, as well as too few tax incentives.

At the press conference in Vienna, Zakostelsky renewed the association's calls for the introduction of the EET-model in the Austrian second pillar, which would see pension fund contributions become tax deductible and only taxed at retirement.

Given additional incentives, half the polled employees would be prepared to make contributions to the occupational pension scheme themselves.

Of those who already have a pension plan, 38% are also contributing themselves - much more than the average over all employees in the second pillar, which is closer to 15% or 20%.
 

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