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EIOPA approach to default recovery ‘too severe’, says AEIP

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The European Insurance and Occupational Pensions Authority’s (EIOPA) assumption that pension funds are unable to recover payments from sponsors following a default is too severe, according a group representing the interests of European social partners.

According to the European Association of Paritarian Institutions of Social Protection (AEIP), the regulator’s placement of IORPs at the back of creditor queues upon insolvency could “pose issues for the comparability of the holistic balance sheet (HBS) results across Europe”, as individual member states regulate recoveries differently.

In its consultation response to EIOPA’s discussion paper on sponsor support, the association also warned that the default probabilities the regulator would employ – based around credit ratings – would often be influenced by liquidity problems.

“This does not always mean there is insolvency,” it added. “Using these probabilities of defaults in combination with no allowance for recoveries is too severe.”

Its consultation also questioned whether the strength of multi-employer scheme sponsors could ever be adequately measured, and said the matter should be addressed in more detail and further studied.

“The fact that many industry wide schemes have often thousands of independent sponsors is not treated in a sufficient manner,” it said.

“AEIP still questions whether a proper methodology for industry-wide IORPs can actually work, given the difficulties in assessing the strength of an industry rather than a single company.”

The AEIP also sided with PensionsEurope in urging the regulator to consider the macroeconomic impact of its HBS proposals, saying the threat of the new balance sheet approach could be discouraging employers from launching new IORPs.

“Indeed, the possibility that the sponsor-support element of the HBS has to be mirrored in the balance sheet of the sponsor would provide a strong disincentive for employers to provide occupational pensions and might push them to shift from DB to DC,” it said.

“In this respect, we also would like to raise awareness of the need to further investigate the macroeconomic impact of the HBS.”

PensionsEurope noted in its response that, while the European Commission had aborted studies by the European Central Bank and the Joint Research Centre assessing the impact of the HBS, the “necessity to assess the macroeconomic consequences” remained.

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