4
Consideration of restrictions on the recognition of a pension scheme surplus as part of the calibration of an internal model
4.1
Firms should consider requirements in the relevant International Financial Reporting Standards concerning the circumstances under which a pension scheme surplus may be recognised as an asset of the sponsor.
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4.2
These considerations are relevant for determining the impact of the pension scheme on a firm’s own funds. If the firm uses an internal model to calculate its SCR then restrictions on the ability to utilise a pension scheme surplus will also be relevant for determining the SCR.
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4.3
The SCR calculated by an internal model should provide policyholders with a level of protection that is equivalent to a calibration corresponding to the value-at-risk of the firm’s basic own funds subject to a confidence interval of 99.5% over a one-year period.[12] It is important for the firm to consider how basic own funds may change as a result of risk events. Part of this change may be driven by changes in the value of the assets and liabilities of a pension scheme.
Footnotes
- 12. Solvency Capital Requirement – General Provisions 3.3 and 3.4 in the PRA Rulebook.
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4.4
When considering how basic own funds may change owing to risk events, firms should consider whether restrictions on the ability to utilise pension scheme surpluses would apply in those circumstances. In doing so, firms should consider any obstacles to covering losses with resources in the form of a surplus in a pension scheme. These obstacles might arise from any barriers to moving resources from the pension scheme to the entity.
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