The European Insurance and Occupational Pensions Authority chairman has defended proposed stress tests on IORPs as he announced a data-collection exercise in the coming weeks.
Data will be collected from IORPs in the EU’s largest pensions markets, analysing approximately 10 years of investment data, particularly investment and divestments.
The chairman, Gabriel Bernardino, said this would cover times of financial stability and stress, in order to define whether IORPs were pro or anti-cyclical.
Speaking at the UK National Association of Pension Funds (NAPF) Annual Conference in Liverpool, he rejected accusations that stress tests were unnecessary and a burden on schemes.
He said EIOPA had a duty to conduct tests on both the insurance and pensions sectors, but stressed it would not copy the insurance model.
“Our aim is to develop a stress test framework that is appropriate and suitable for pension funds,” he said.
“For pension funds, there is no experience of running these stress tests for both defined benefit (DB) and defined contribution (DC), and no way of analysing the direct transmission channels between pension funds and financial markets.
“We do not want to start the thinking with the opinion big pension funds are systemically important – this is not our starting point. We want to understand the market better and how the linkages are.”
He said once the data collection had taken place, the stress test would begin in 2015 and run in parallel with a quantitative assessment of scheme solvency, part of the holistic balance sheet consultation.
On Monday, EIOPA launched a consultation on six frameworks for the contentious holistic balance sheet.
He said this was the first step on the journey towards the creation of a risk-based framework for pension funds, adding that the consultation was much broader than any work previously done by EIOPA on solvency models.
There are three levels within the consultation, moving from solvency requirements, minimum funding levels and using the holistic balance sheet as a risk-management tool.
However, Bernardino stressed that using it as a risk-management tool would not be an easy option and said it should come with clear published results so funding levels can be analysed and, if necessary, stimulate reform.
“They should not be without consequence,” he told NAPF delegates.
“If it is concluded that the pension fund is providing unsustainable pension promises, regulators should take action, of course, using a flexible approach.
“We are not promoting a new ‘one-size-fits-all’ approach. The framework should have built-in flexibility to deal with the range of occupational pension schemes in different [EU] member states.”