Three of Sweden’s largest pension funds have criticised draft solvency rules within the regulation to implement IORP II.

Folksam, AMF and Alecta issued a joint response to the Swedish FSA’s draft IORP II solvency rules, warning of the potential impacts on traditional defined benefit (DB) pensions.

The providers said the new rules – which were put out for consultation by the FSA (Finansinpektionen) on 8 July – would negatively affect both pension savers and employers.

Ylva Wessén, Folksam’s acting group chief executive, said: “Finansinspektionen’s proposal for solvency regulation risks leading to significantly lower pensions for the beneficiaries and also to large cost increases for employers.”

The funds called for the regulator to:

  • Remove the general due diligence deduction for market rates and replace it with a realistic credit risk deduction;
  • The FSA should retain the prevailing forward rate if the current model for calculating the discount rate curve is kept; and
  • An overall adjustment of the capital requirement should be made to correspond to the level set by the legislature.

Wessén also said the higher capital requirements for unit-linked insurance in the proposal reduced the scope for low fee levels. “This has a negative impact on pensions,” she said.

The funds opted to make a consultation response as a group because their industry association, Insurance Sweden, had no overall position on the solvency rules for traditional insurance.

In its response, meanwhile, Insurance Sweden said it was critical of many parts of the proposed regulation.

It said insurance technical provisions, capital base and capital requirements had to be seen as a whole, but the FSA had not made any assessment of the overall effect of the solvency regulation.

“In our view, the proposals lead to a marked tightening of requirements,” it said. However, it voiced support for several of the proposed methods for calculating capital requirements and for a review of capital requirements.

The association said collective bargaining parties should not need to have to agree on what information should be provided to the insured.

“The current way of providing occupational pension information works well and should not be changed,” it said.

“Finansinspektionen’s proposal contains a lot of ambiguities that need to be addressed in future work,” Insurance Sweden said. “This applies to the obligation to provide information to the insured, the requirements of the annual report and the reporting requirements.”

Last week, occupational pensions association Tjänstepensionsförbundet, whose members include government pension fund Kåpan Pension, banking sector scheme SPK and insurers’ pension fund FPK, responded to the regulatory plan saying the rules would lead to funds having to undertake too much administrative work, pushing up costs.