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?

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.

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.

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.