TALKING POINT EUROPE - There is widespread debate about whether there is a need for Solvency II-type arrangements to be placed on occupational pension funds, following fresh comments from French government and Danish pension fund officials among others last week.
Clearly, there are strong opinions about whether some form of regulated solvency regime across all pension fund arrangements would be beneficial, and this is creating waves between the local and cross-border pensions markets.
Talk behind the scenes is some French pension officials are in disagreement with the comments made, while others pension commentators suggest CEIOPs may have indicated the application of a Solvency II-type may not be suitable for pension funds, but those involved may have split opinions.
So we would like to know whether you think a regulatory regime of some kind can be placed which creates a "level-playing field" as Fabrice Pesin of the French government suggested? Are there sufficient controls in place to ensure the solvency of pension funds is sufficiently secure? Do employer and sponsor covenants do enough to protect their pension promises in the event of funding deficits?
All comments on this subject will be posted on this page, showing the arguments for and against a Solvency II-type regime and anonymity can be preserved if you prefer not to disclose your identity. (We will post all comments providing the individual is identified to the editorial team).
Our aim is to create genuine debate and find out why there are differing opinions, so send your thoughts on Solvency II for pensions funds to firstname.lastname@example.org
To review recent IPE's coverage of Solvency II, follow the attached web links:
Have Your Say: Brian Meek of Thames Hudson, comments:
"The French can claim that Solvency II should apply to DB schemes since the greater proportion of retirement benefits in France come from the government not employers.
"If it were to be applied in the UK and several other EEC countries, such as Holland, no employer would seriously countenance keeping a scheme open.
"The whole point here is that there are two safeguards to DB pensions: the employer's covenant and the PPF (or EEC equivalents). The cost of pension provision can be spread.
"Aside from the cost and damage to company balance sheets there would be no point in having any pension scheme other than one set up by an insurance company.
"Or is this the point of the "level playing field" exercise? Self-interested parties crying wolf?"
Have Your Say: Peter Kraneveld, a consultant, comments:
"The issue isn't really very difficult. As has been pointed out a few times by a number of experts, commercial pensions are not very different from insurance companies, so they should follow the same rules in order to maintain competition as an instrument to make markets efficient and prices low. However, occupational DB pensions are a different animal altogether. They have many more instruments to adjust their expected income and outlays and offer a different product, so applying the same rules would in fact give them a disadvantage over commercial pension providers.
"In addition, Solvency II rules would force them to either to increase their contribution rate to the extent that employers would give up on DB (there's been far too much of that already; I am constantly amazed at the arrogance of institutions that seem to think they may destroy pension capital or social benefits so that they can sleep more easily) or to adjust their portfolios, which would significantly cut into returns and therefore pensions. In all cases, beneficiaries would lose, our economic competitors would win as our wage costs increase.
"Many comments, including recent comments show a degree of ignorance of what happens outside the domestic borders. The Danish pension system, for instance, is close to the insurance sector, so applying Solvency II there makes sense. However, it does not make sense for Danes to insist other pension systems should therefore suffer the same fate. Other pension systems, notably British, Irish and Dutch, but also some German pension systems are occupational DB and should, by their nature, be treated differently, so as not to lose their economic and social advantage. That doesn't mean all pension systems should be treated so. The solution is blindingly obvious: link Solvency II to UCITS and the insurance directives and devise an appropriate alternative, linked to the IORP directive.
"Of course, the third pillar players wouldn't like that, but they love to forget that the IORP directive gives them the possibility to offer pensions under the IORP directive if they wish (IORP directive, article 4). That's fair. You get the advantages with the disadvantages. Claiming the benefits but being unwilling to shoulder the disadvantages of IORP is disingenuous."
Have Your Say: Jane Beverley, principal at Punter Southall, comments:
"Despite this apparent show of hands in support of Solvency II, the case against such a move remains strong. As we set out in our research paper last year, pensions and insurance are fundamentally different vehicles and should be treated as such. Safety mechanisms already exist for pensions, especially in the UK, such as the backing of the sponsoring employer and the Pension Protection Fund, which make a solvency regime unnecessary.
"A Solvency II regime could increase required funding levels for UK defined benefit pension schemes dramatically, and there could be a wider negative impact on pension provision across the EU, as higher funding costs deter other states from providing defined benefit schemes."