Towers Watson noted the challenges the Commission would face in trying to propose a regime acceptable to all countries. "While the upper bound set might appear more favourable for the UK, it appears less so for the Netherlands due to the absence of sponsor support." In an upper-bound scenario, the potential maximum value of sponsor support was being counted as an asset. This, according to senior consultant Dave Roberts, results in a large aggregate surplus owing to sponsors having the whole of their potential support included in the calculation.
The pension schemes that took part in the three-month exercise launched last October were required to calculate their solvency ratio using three different scenarios: a benchmark scenario, an upper-bound scenario and a lower-bound scenario. Under the benchmark scenario, IORPs were asked to include all types of pension benefits and to take into account ex post benefit reductions, include a risk margin based on the cost-of-capital concept, include sponsor support and pension protection schemes as an asset on the balance sheet. By way of comparison, under the upper-bound and the lower-bound scenarios, IORPs were asked to follow the same requirements but needed to use a different basic risk-free interest rate curve and different approaches towards the inclusion of mixed benefits and risk margins.
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