We agree that the scope is mainly appropriate, assessing the volatility of own funds as a consequence of a change in prudential and accounting rules. Only the amendments of IAS19 on post employment benefits have a consequence on own funds including post employment medical care. An overall impact should include all post employment schemes and not only defined benefit pension funds.
We recommend to align or to differentiate the following definitions, in the sake of clarity:
“net pension assets vs. net pension liabilities”, “net benefit pension fund assets/ liabilities” and “defined benefit pension funds”.
We also recommend to introduce the topic in accordance with different situations: patterns with prudential deduction (net pension asset) and patterns without prudential deduction (net pension liability) and defined benefit liabilities which are not funded by plan assets. This would increase the understanding and the clarity of the conclusions.
In principle we agree with the chosen approach (qualitative, quantitative and additional considerations). We would welcome recommendations for legislative action.
We do not consider a prudential deduction as useful (compare our general comments).
Especially, the funding of plan assets directly with cash which does not have an effect on equity is an argument against a prudential deduction.
It could also be mentioned that the Art. 26 of the CRR, Common Equity Tier 1 (CET1) items include (d) accumulated other comprehensive income, which included actuarial gains and losses.
We do not believe that the main drivers of the change in the amount of net defined benefit pension funds would be items for which a corresponding gain or loss is recognised on own funds. In fact, as already outlined before, considering the listed combinations of facts the volatility of own funds in our opinion is not predictable. In fact, the formation of a Contractual Trust Arrangement (CTA) by funding plan assets directly with available cash changes the plan asset and thus the prudential deduction without an reflection in own funds. Because of the change of the prudential deduction there is resulting volatility of own funds.
Moreover, we think that the main impact on own funds results from entities which applied the corridor approach under the previous IAS 19. This approach was cancelled in IAS 19 (2011) and all actuarial gains and losses are accounted for in other comprehensive income (OCI). In our view the deduction of net defined benefit assets from CET1 could be not as important because of the asset ceiling mechanism.
We agree that the main impact of IAS 19 (2011) results from the immediate recognition of actuarial gains or losses under other comprehensive income (OCI) and of all past service costs.
The analysis of the changes by IAS 19 (2011) appears to be complete. The examination has, however been made without regard to the different scenarios (see general comments) and therefore, from our point of view, is incomplete and not sufficiently clear.
We agree with the methodology but we consider that the results is not presented clearly.
The main conclusion for us is dealt in para. 76 of the discussion paper.
The institutions that suffer the main impact are those who applied the corridor approach and had significant amounts of unrecognised actuarial gains and losses and pas service costs.
We agree that the discount rate and the inflation rate are significant actuarial assumptions (external elements). Salary increases and turn over rates are also significant (internal elements).
There is no difference between the two standards about the discount rates. The differences come from the market corporate bonds and the appreciation of what is a deep liquid market in euro zone.