EUROPE – The European Insurance and Occupational Pensions Authority (EIOPA) has released its final report on the first quantitative impact study (QIS) for the revised IORP Directive alongside a discussion paper on an improved methodology for valuing sponsor support.
The final report on the first QIS exercise – which aimed to assess the impact of the potential implementation of a holistic balance sheet (HBS) accounting approach within the IORP II Directive – came almost three months after the Frankfurt-based authority sent its preliminary results to the European Commission.
In this final report, EIOPA reiterates its view on the difficulty of properly assessing the impact an HBS approach would have on occupational pensions across the EU, saying the outcome of the first QIS shows a wide range of results, ranging from surpluses in some member states to large shortfalls in others.
In its preliminary results, EIOPA already stressed that, even though the first QIS provided insight into the workings of the HBS approach, its results should be treated with caution.
According to the authority, the fact IORPs participating in the first QIS based their calculations on existing policies and national supervisory frameworks could lead to approximated responses.
However, EIOPA stresses in its final report that the HBS approach can contribute to the sustainability of pension funds, in line with the EU policy of providing citizens with adequate, sustainable and secure pensions.
Gabriel Bernardino, EIOPA’s chair, said: “The holistic balance sheet that underlies this QIS is an opportunity to develop a risk-based measurement of all of the elements that affect the cost of providing benefits, as well as all mechanisms that fund those benefits or contribute to their security.”
Meanwhile, EIOPA also launched a discussion paper on an improved methodology to evaluate the sponsor-support element.
The paper comes after stakeholders raised a number of issues related to the sponsor support in recent months.
Some pension experts have argued that the security mechanism section within the QIS provided little guidance for performing stochastic valuations.
Others have argued that the QIS specifications for valuing maximum sponsor support are unsuitable for some types of organisations – including not-for-profit organisations, subsidiaries and multi-employer schemes – and failed to account for more complex situations.
They also complained about the fact the determination of the sponsor default probabilities was “highly dependent” on credit ratings, while the value of the sponsor support depended on an arbitrary timing of sponsor support payments.
EIOPA said: “As noted by stakeholders and IORPs in both the public consultation and during the QIS itself, the methodology for valuing sponsor support is subject to considerable practical difficulties.
“In particular, the maximum amount of sponsor support and the sponsor default probability are difficult to implement for IORPs.”
Stakeholders will have until 31 October to send their feedback to EIOPA.