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The European Commission unveiled a draft law last week envisaging the application of Solvency II to European insurers from 2012, as it believes this would better correlate an insurer’s required core capital to its risks.
Although not specifically mentioned in the draft law, some EU regulators – most notably Germany’s BaFin – believe Solvency II should apply to pension funds, including Pensionskassen the BaFin already oversees.
But VFPK chairman Peter Hadasch, who is also head of investments at the Pensionskasse for food giant Nestlé, insists if that happens it would “lead to a substantial increase in the costs of long-term pension provisioning and thus jeopardise the future of capital-backed pensions”.
“Pensionskassen would also be forced to cut their equity investments by half owing to the stricter capital adequacy requirements. This, in turn, would push down returns for schemes’ insured and be detrimental to Germany’s stock market,” added Hadasch.
Klaus Stiefermann, managing director of German occupational pensions lobby aba and a board member of the European corporate pensions lobby EFRP, questioned the logic of applying Solvency II to German Pensionskassen.
“Regulators should bear in mind that these vehicles already provide a very high degree of security,” he said.
“In Germany, employers who offer corporate pensions must, by law, honour those pensions, regardless of what form the pensions are administrated in,” added Stiefermann.
Indeed, German Pensionskassen are tightly regulated by the BaFin in part to ensure they provide a minimum return on paid-in savings – currently at 2.25% per annum.
The regulatory regime includes a 35% cap on equity investments as well as stress tests of the Pensionskasse’s equity, bond and real estate exposures.
Hadasch’s negative comments on Solvency II echo those of EFRP chairman Jaap Maassen last January when he said: “Solvency II for pension funds means you are foregoing better investment returns – and without those better returns you lose the opportunity to index properly unless, of course, you are prepared to raise contributions significantly, which is not an option.”
Stiefermann said the EFRP, aba and the VFPK were all trying to persuade EU regulators to develop a capital adequacy regime more suited to European pension funds.
See also Handelblatt artice of 11 July “Versicherungen stehen vor Zeitenwende“ (German only)