02 April 2012

IPE: Regulating Europe

Denmark

The tax payable on pension returns (PAL-tax) has been raised from 15 per cent (applicable to end-December 2011) to 15.3 per cent (from 1 January 2012).

The annual ceiling for payments to pension schemes with less than life-long coverage (i.e. which make either term payments or pay annuities for a fixed period, rather than for the recipient’s lifetime) has been reduced to €6,726 from 2012.

Under the voluntary early retirement pension (VERP) scheme, people born after 31 December 1962 can now only start drawing their state pension up to three years before retirement age (previously, this was five years). Meanwhile, the government still has to implement the Solvency II regulation. But there are no indications of any time scale for legislation.

Finland

The first phase of solvency regulation is now in force. The main effect is to use a more accurate risk classification for bonds and loans when applying Finland’s risk-based solvency requirement formula.

Proposals for the second phase rules are to be submitted to Parliament this spring. The main aim is to create a common buffer (solvency capital) for pension funds against investment and insurance risks. The third and final phase of the regulation process will deal with all the risks recognised in Solvency II in a national framework. This should take effect in, or after, 2014.

The rules on pensionable age are now the subject of the biggest pensions debate in Finland. The statutory retirement age is flexible, from 63 to 68 years. Individuals can, however, retire at 62 by taking an actuarial deduction from their monthly benefit.

Germany

The law on Family Care Time came into force on 1 January 2012. It allows employees to reduce their working time by up to 15 hours per week, in order to care for close relatives or dependants, up to a limit of 24 months. However, employees do not have an automatic right to claim this arrangement but must agree it with their employer. Solvency II is currently being incorporated into German law via the tenth amendment to the Insurance Supervisory Authority. Key provisions to reduce insolvency risk include the introduction of enhanced solvency requirements for insurance companies, and the setting of new valuation regulations for assets and liabilities.

The Netherlands

Parliament has voted to raise the state retirement age to 66 in 2020 and to 67 in 2025. Attention has now shifted to the second pillar system. Kamp has said the age for receiving second pillar entitlements will rise to 67 by 2014.

A looming political problem is annuity purchase by members of certain long-established DC plans. Unlike more modern plans, these funds were not rebalanced into lower-risk securities as active membership ended. So members will get lower annuities than they expected.

Sweden

The risk-based calculation of solvency will now have to be implemented for undertakings covered by the Act, including the Swedish IORPs. The government committee responsible has suggested this is done by updating the act to comply with Solvency II. It is planned to do so by 2014.

Switzerland

On 1 January 2012, the provisions of the structural reform of occupational pension schemes became fully effective. However, following criticism of the high level of detail and the lack of a legal basis for some of the provisions, the Federal Council amended the preliminary draft of the regulations.

UK

The Pensions Act, passed last summer, takes full effect from October this year, with the introduction of auto-enrolment. Starting with the largest organisations first, all employers will have to provide workplace-based pensions for their employees.

The second major development concerns reform of the state pension. The government published a Green Paper last year setting out plans for a simpler, more generous state pension of around £140 per week, funded by merging the basic state pension with the state second pension (SERPS). Once introduced, this should reduce the need for means-testing benefits. The government is currently consulting industry groups and is expected to publish a White Paper during 2012.

The government continues to work on its plans for the ‘reinvigoration’ of occupational pensions, contained in the coalition agreement. One of the aims is to slow down the trend towards DC schemes by making DB schemes less onerous and more flexible for employers. One proposal is to abolish the requirement for defined benefit (DB) schemes to provide extra benefits such as inflation increases, spouse’s pensions, and so on, instead requiring them only for future accruals. The pensions minister, Steve Webb, has talked about a new form of pension provision – ‘defined aspiration’ or ‘DA’ – that would fall between the two existing models of DB and defined contribution (DC).

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