Pension funds are sitting on a dynamite or risk

I really don't see why Solvency II doesn't apply to them. I mean to be allowed to Invest Billions in a equities and then be defenceless against a recession?

 

I understand where you are coming from. But the level of regulation on DB pensions is quite burdensome, especially in the UK where they have the Pension Protection Fund. The PPF levy is risk based - meaning that those DB funds that do not match their liabilities pay more.

The number of DB funds is also reducing by the day, look at how Towers Watson (itself an advisor) of countless DB funds has decidec to close its DB scheme. In my home country (Zimbabwe) virtually all DB schemes have been closed and changed into collective defined contribution schemes.

 

Having defined contributions doesn't mean pensioners' must be exposed to risk.

Do we seriously don't care that much?

 

There is a flip side to this. Equities have a social impact since they are cheap and relatively safe source of funds for business owners in the country enabling them to take higher risks resulting in higher profits/bonuses, which would otherwise not be possible. As long as the country has sufficient regulation to prevent flight of money out of the country, the pensioners would benefit way more significantly in the long run not merely by equity growth but also via higher bonuses and opportunities to grow.

 

How will a solvency regime for DC funds work, bearing in mind that for DC funds, the assets are the liabilities - so the solvency is always 100%

 

The capital requirement or the qualitative risk management, making them hold 43% of equity as a buffer for a recession like insurer's do.

So the assets and liabilities have a lower bound

 

I agree that some asset classes may not necessarily give the local market a boost, i'm just saying let's calibrate for a recession and do something about that 1-in-200 year risk.