UK - Mutual insurers will be forced to cut bonuses to with-profits policyholders to plug their own pension scheme deficits, industry experts warn.
The concerns were raised ahead of next week’s announcement by Europe’s largest mutual, Standard Life, over the full extent of the damage that falling markets have had on its £761m non–contributory final salary scheme.
Analysts believe the scheme – which is over 70% invested in equities – will have an FRS17 deficit of at least £200m.
But experts predict that if Standard Life moves to plug the deficit, the money will have to come from its with-profits policyholders.
Independent analyst Ned Cazalet pointed out that Equitable Life was still paying into its pension schemes while further reducing the money available to its policyholders.
Cazalet explained: “Where the scheme sponsor is a mutual, the pension costs will effectively fall on the capital of the company.
“Therefore, this will impact upon the returns of policyholders who, at the end of the day, own the company.
“The life sector has the same problems as others, but in these cases, the problems will be another drain on the with-profits funds.”
But Standard Life group chief accountant George Reid said: “There are no plans to change the specifications of the scheme and it is presumptuous to talk of plugging deficits.”
Mercer Human Resource Consulting European partner Matthew Demwell warned that if insurers try to boost their schemes’ bond holdings to cover solvency margins, it will push up the price of bonds, making it harder for other schemes to do the same.
Most respondents in this week's Pensions Buzz do not think businesses should be able suspend AE contributions if in financial distress.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers