EUROPE - Benefit cuts could be the only way for pension funds to survive Solvency II legislation, according to Allianz Global Investors (AllianzGI).
Gerhard Scheuenstuhl, managing director of risklab germany GmbH, which carried out the survey with AllianzGI, said risk sharing would ease some of the funding burden on companies but more work was needed in this area before implementing such strategies.
Scheuenstuhl commented: "As an extreme version, the employees' agreement to benefit cuts is the most effective arrangement in terms of Solvency II as it currently stands but most likely it is not the one favoured by employees and pensioners."
A pension scheme would have to raise funding levels to 169% on an IAS 19 basis, which could mean reducing equity and alternative exposure in its portfolio, according to the analysis.
Allianz said pension funds were set up differently to insurance companies which the legislation was designed to cover, so guidelines in their current form would have to be adapted if it was to comprise both industries.
Brigitte Miksa, head of pensions international, AllianzGI said: "Solvency II aims to ensure adequate policyholder protection in all EU member states through the requirement for a level of funding that more closely matches the true risks of insurance undertakings."
Miksa continued: "Our research shows that to apply Solvency II in its current form could be the final nail in the coffin for DB schemes."
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.