EUROPE – State Street Global Advisors sees potential problems in S&P’s suggestion that it is considering rating pension schemes – though it says the idea is “interesting”.

Ratings agency Standard & Poor’s has said it is “kicking around” the possibility of rating individual pension funds.

S&P actuary Paul Bradley raised the idea in a presentation at the National Association of Pension Funds conference in Edinburgh last week, saying that any rating would be based on the rating of the scheme’s sponsor.

Bradley, and his colleague, accountant Rob Jones, told delegates that they had no idea of a possible timescale for rating funds.

“It’s a really good idea,” said SSGA’s head of structured products Rick Lacaille. Though he said it depends on the quality and the rigour of the analysis.

He said that a sponsor’s strength and “personality” – whether it is a mutual society, public company or owned by the taxpayer – is key. The “personality” shapes the requirements of the pension fund, Lacaille suggests.

He cautioned against taking a too “broad brush” approach to the ratings, saying that the rating firm needs to be able to take into account the set of assumptions that lays behind the scheme.

He could foresee a situation whereby companies would reduce the benefits to members in order to improve their liabilities and hence their rating with S&P.

In February S&P put 10 European companies on credit watch as a result of their pension fund deficits. The companies cried foul, saying S&P’s analysis was not based on new information.