I’ve written about this before, but it looks like it could be getting serious now. It’s to do with the way defined benefit (or final salary) schemes are funded. You’ll know that employers who’ve been good enough to run such costly schemes for their employees have over recent years had to account for their long-term promises with an ever more short-term outlook. The nature of scheme funding has changed enormously, but some winds blowing in European accounting circles look like they could make things even tighter for employers running salary-based scheme promises.
I’ve written both negatively and positively about this as the wind has changed over the last year or so; here’s a negative one: Dark Chords on a Big Guitar and here’s a positive one: Solvency II Near Miss!
This is another one today that I’d classify as being a bit on the worrying side.
This whole thing is to do with something called the Solvency II Directive. That’s something that principally was designed to firm up the solvency requirements of insurance companies, but that some people want to have applied to occupational defined benefit pension schemes as well. The European Federation for Retirement Provision (the EFRP) is apparently so concerned that Solvency II regulations could spill over to pension funds that they’ve just issued a warning in a press statement about it. That press statement is here if you’d like to read the whole thing:
The EFRP is concerned enough about this that its Chairman, a chap called Angel Martinez-Aldama, has said:
“Imposing Solvency II funding rules on workplace pension funds would result in lower pensions for millions of EU citizens. Applying such rules to Defined Benefit (DB) and hybrid schemes would simply make them too expensive to offer thereby undermining the long-term safety and sustainability of high quality workplace schemes.”
Is Solvency II going to be another nail in the coffin of final salary schemes in the private sector in the UK? Not necessarily; it could just be the straw that breaks the camel’s back…
2 June 2008
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