UK - Occupational pension schemes are in need of around £100bn if they are to achieve the same level of financial security as the life assurance market, according to ratings agency, Standard & Poor's (S&P).
Andrew Campbell-Hart, a managing director at S&P, London, highlighted the credit gulf between the occupational pensions market and money purchase schemes:
The UK's combined occupational pension funds maintain a minimal level of free capital, he said.
This compares with the UK's regulated financial institutions, which boast a marketwide capitalisation of about £78bn.”
But he added that the market was faced with a “conundrum” - with many defined-benefit schemes closing due to their high operational costs, introducing further costs would make most funds “prohibitively expensive” to run.
Either [the market] must accept the fact that occupational pension funds offer a less secure but inherently cheaper option than their life assurance competitors, or it must find a half-way house between cost and security by making modifications to the existing system, he said.
Commenting on the impact of FRS17 and MFR on funds' corporate sponsors, Bob Ukiah, a director of S&P's corporate ratings, also said that FRS17 simply made the situation more transparent. Of greater significance, he added, was the effect of MFR - the Minimum Funding Requirement - on an entity's profit-and-loss account and cash flow, which, by increasing contributions to the scheme, could weaken the sponsor's rating. S&P also highlighted how the new accounting doctrines might also result in a reduced role for asset managers over time as pension funds adopt more conservative investment strategies.
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