Tuesday, May 30, 2006

Contingent assets in UK pensions [UK]

The UK Pensions Regulator has issued guidance today on the usage of contingent assets in funding pension schemes. This is of particular interest to pan-European schemes since they require full funding.

A contingent asset of a pension scheme generally will be treated as a contingent liability of the employer. According to IAS 37, such contingent liabilities usually will not need be recognised in the employer's balance sheet, but require disclosure only. Therefore funding pension schemes by means of contingent liabilities may be an attractive funding option for employers.

Big Mac index

The Economist announces the 20th anniversary of its famous Big Mac Index, expressing the relative over- or undervaluation of currencies by reference to the price in local currency of a certain US fast food chain's flagship product. While the Economist claims that "burgernomics has an impressive record in predicting exchange rates", it doesn't offer any statistical proof, unfortunately. It is nonetheless interesting to note that the Swiss Franc is significantly overvalued (+68%) relative to the USD, beaten only by Iceland & Norway, where special explanations will likely apply. The Franc's overvaluation is still significant if compared with the EUR zone (+22%), Sweden (46%), Denmark (+54%), Britain (+18%). Time to put that unused foreign currency allocation to work?

Monday, May 29, 2006

IMF on Swiss pensions supervision [CH]

NZZ in its Saturday Reflexe points us to the Concluding Statement of the IMF Mission dating back to March, which we've completely missed. Not only do the IMF staff underline the need to extend working life further, in line with increased life expectancy.

More importantly, they will look further into several second pillar issues, namely -
  • understatement of underfunding due to discounting of liabilities with non-market-based interest rates,
  • fragmented cantonal supervision, opening up opportunities for regulatory arbitrage,
  • regulatory distortions relative to the insurance sector, because regulation is not risk- and market-based as in the insurance industry.

  • From an international practitioner's standpoint, these are all valid issues that deserve close examination. Regulatory arbitrage is a fact, as is the lack of a fair value based approach to funding issues.

    Friday, May 26, 2006

    Transposition complete this year?

    epn has a fairly good, albeit anecdotal status report on the progress of transposition of the Pensions Directive in some of those countries where it is still lacking.

    Thursday, May 25, 2006

    UK reforms

    The British government has today presented proposals for a wide ranging reform of that country's retirement provision system (via BBC). At first reading, the reform seems to address improving retirement income by raising the first and the third pillar. This is to be achieved by introducing default personal accounts with an opt-out option, but also recognising the increased life expectancy by raising the so-called state pension age to 68. Changes to recently modified occupational pensions are not in evidence.

    The BBC has an in depth dossier on pensions.

    Thursday, May 18, 2006

    EFRP view of Switzerland

    Here is an interesting presentation about EFRP and its view of the Swiss retirement provision system.

    Monday, May 15, 2006

    Directive to cause "significant disruption"

    IPE recently reported this news item, which is based on an online survey of the UK Society of Pension Consultants. 52% of respondents indicated that the DIrective's implementation had caused significant disruption.

    I just enquired about the background to this news item. The press release is based on 31 responses to a one question online survey sent to the SPC's membership base of about 130 members. While this is a pretty good response ratio, it is notoriously difficult to interpret. According to John Mortimer of SPC, those significant disruptions are attributable to the UK implementation of the Pensions Directive, and they are not indicative of a generic problem. Mr. Mortimer quoted a UK specific issue with foreign secondments of employees which, if handled wrongly, can cause the secondment to be treated as a cross border case the consequence of which would be that the IORP in question needs to be fully funded. That might indeed work out to be a severe disruption - but for the time being, this news item's impact is limited.

    Sunday, May 07, 2006

    Interactive financial data in Switzerland

    The Chairman of the US SEC has dedicated a considerable portion of his testimony before the US House Committee on Financial Services to interactive financial information and XBRL. Personally I am convinced that XBRL in conjunction with the IASB's IFRS taxonomy is the next big thing in financial reporting, so I recommend to attend the Swiss CFA Society's forthcoming free seminar on the issue.

    Thursday, May 04, 2006

    Plan harmonisation by 2010

    Rauser Towers Perrin have studied the pension plan harmonisation perspectives of multinationals, given that regulatory harmonisation is not on the agenda quite yet. Unsurprisingly, the study concludes that plan design is still mostly performed at the national level with some mandatory guidelines from HQ. Nonetheless, plan harmonisation is firmly on the agenda with a target date of 2010. The most important arguments in favour of harmonisation are increased employee mobility within the group and integration into a group-wide total compensation system as well as increased transparency and greater efficiency in risk control while the reduction of admin costs is not considered to be quite as important.


    In a very commendable display of user-friendliness and transparency, the Austrian Financial Market Authority publishes, among many other relevant things, the relevant social & labour law applicable to IORPs resident in other Member States (equally available in German of course).

    Wednesday, May 03, 2006

    Liechtenstein draft

    Liechtenstein has now opened a public comment period until 5 July for its draft law transposing the Pensions Directive into its national law.