Occupational pension funds in the process of converting to Sweden’s new IORP II regime could be liquidated unless certain transition rules are put in place, the regulator has warned, because the pandemic’s effects on markets might make them fail capital requirements.
The Swedish FSA (Finanstilsynet, FI) has written to the Finance Ministry asking for transitional provisions to be added to legislation translating the EU’s IORP II directive into the domestic rulebook.
The authority said it needs new legal wording added to allow it to approve the conversion of mutual benefit societies (understödsföreningar or pension funds) offering occupational pensions to occupational pensions companies (tjänstepensionsföretag) by the end of this year – even though some may not meet the capital requirements at that point.
The watchdog was handling eight occupational pension funds’ applications for conversion to occupational pension companies in accordance with the IORP II Act (2019: 742), and all but one had asked for the conversion to take effect from 1 January 2021.
“It is therefore important that a legislative amendment comes into effect as soon as FI can decide on the cases before the turn of the year,” the authority wrote.
In its initial assessment, FI said the applicants’ operations were basically sound, and in normal circumstances they would have good prospects in the long-term of meeting capital requirements.
“However, due to the COVID-19 pandemic and the volatility prevailing in the markets as a result of the outbreak, FI sees a risk that one or some of the occupational pension funds may find it difficult to live up to set capital requirements at the time of FI’s decision about transformation,” it said.
Overall, FI argued in the letter – signed by its chief counsel Eric Leijonram and senior lawyer Nanny Hiort, there were good reasons for introducing such transitional provision, because the regulation on occupational pension companies was well suited to the pension funds applying, and the funds were also deemed to be viable.
“At the same time, the consequences that could arise if transitional provision is not introduced are significant since an occupational pension fund has to go into liquidation if an application for conversion from a subsidiary to an occupational pension company is refused,” FI wrote.
The eight applicants for conversion to occupational pension companies are PP Pension, Pensionskassan SHB, Sparinstitutens Pensionskassa (SPK), Försäkringsbranschens Pensionskassa (FPK), Svensk Handel, VFF Pension, Kåpan and Svenska Kyrkans Pensionskassa, FI confirmed.