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Solvency rules for pension funds could lead to 'dead money', expert warns

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  • Solvency rules for pension funds could lead to 'dead money', expert warns

EUROPE - Forcing a solvency regime on pension funds could result in "dead money" for companies without benefiting scheme members, a leading member of Punter Southall has warned.

Responding to the European Commission's Green Paper on pensions, which mooted the possibility of a "sui generis solvency regime", Jane Beverley, head of research at actuarial consultancy Punter Southall, warned that forcing sponsor companies to put aside additional funds could cause problems.

"Tying up their money in this way doesn't actually benefit pension scheme members, but it does harm their company," Beverley said.

"If you have solvency capital, that's money the employer can't spend in his business, but is not actually going to provide the members with any additional benefit.

"It will simply be sitting there as dead money."

Beverley said the difference between insurers and sponsors to bear in mind was that the employer was actually trying to run a business.

Solvency II, set to come into effect in late 2012, will regulate all European insurers and require them to alert authorities if their funding level falls beneath a certain point.

She added that people opposed to solvency regulation for pensions were not opposed to protection for member benefits, but merely saw other ways of safeguarding them.

She said that if no solvency regime were introduced, it would nevertheless be important for each country to have a strong regulator, citing the UK Pension Regulator's recent contribution notice ordering Michel Van De Wiele Group to pay an additional £5m (€6.2m) into its scheme as an example.

Beverley also expressed concern at the wording of the Green Paper, saying it implied a wide-ranging discussion on the introduction of solvency regulations had already taken place.

She said talks had focused on two specific points, namely whether Solvency II applied to regulatory own funds and cross-border schemes.

"My concern is, this is pretty much saying 'How do we go about applying a solvency regime to pensions?'" she said.

"We seem to have lost the question 'Should we apply a solvency regime to pensions?'"

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