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12 February 2008
Punter Southall comments on recent ASB & Solvency II announcements
Commenting on recent ASB & Solvency II announcements, Danny Vassiliades, Principal at
Punter Southall urged companies to lobby against proposed changes that combined could
represent the end for occupational final salary schemes in the UK.
“In the last week occupational final salary schemes have been faced with a twin threat: the
adoption of Solvency II by the EU and the proposal to measure liabilities using risk-free rates on
the balance sheet. Both proposals would result in significant increases in either employer
contributions to such schemes or on the cost that is recognized within the P&L. Finance Directors
need to be aware of these issues and make their voice heard to ensure that the potential dangers
of these changes are averted.
The ASB have mooted the possibility of dropping corporate bond rates of return for gilt rates in
assessing liabilities. This would cause a one off shock to balance sheets and have a knock on
effect on the P&L position. By placing a higher value on liabilities, more companies would be
willing to discuss a potential buy out of their liabilities, which currently do not make economic
sense for all. The accounting measure at present has not been changed but the potential for
damage to corporate balance sheets, P&L and ultimately on economic decision making suggests
that companies should be lobbying the ASB to ensure that the proposals are not implemented.
The EU have said that the extension of Solvency II to occupational pension schemes will not be
adopted. But this position could change with a new Commissioner. As only a minority of EU
countries would be adversely affected, which includes the UK, the potential for Solvency II to be
adopted is high. Companies should urge the EU to maintain the existing system of regulation
through the UK pensions Regulator and the statutory funding rules.
Together these two changes represent the end for occupational final salary schemes in the UK.
There will be little reason to continue and buy out will become an economically viable option.
Over-regulation will finally kill off the best system of private pension provision in Europe.
”
For more information or to speak to Punter Southall, please contact:
Penrose Financial
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