European pensions industry questions purpose, timing of IORP stress tests
The European pensions industry has taken a dim view of recent news the European Commission is planning to submit IORPs to stress tests as early as next year.
Earlier this week, IPE revealed that the European Insurance and Occupational Pensions Authority (EIOPA) is preparing stress tests for institutions for occupational retirement provision (IORPs) for some time in 2015, according to Patrick Darlap, chairman of EIOPA’s Financial Stability Committee.
James Walsh, EU and international policy lead at the UK National Association of Pension Funds, said EIOPA’s plan to begin stress tests in 2015 risked imposing “new and unnecessary burdens on schemes without strengthening protection for members”.
“The UK has just introduced a revised approach to the regulation of DB schemes funding, and we have a range of initiatives underway to ensure quality in DC schemes,” he said.
“It is difficult to see what value EIOPA stress tests would add, or what mandate EIOPA has for this project.”
The Finnish Pension Alliance (TELA) said EIOPA should hold off on aiming for early stress tests, and that EU regulation should be changed to take account of the social aspects of pension funds.
Ilkka Geitlin, legal counsel at TELA, said: “Instead of aiming for the stress tests, EIOPA should wait and see what direction economic development will take and what the new Commission will look like.”
He said that, having reviewed the recent draft of the Shareholder Directive and IORP II, he questioned whether EIOPA and European Commission completely understood the social and labour dimensions of IORPs.
“There seems to be an ambition to regulate these actors as if they were asset managers, banks or investment funds, which is troublesome since IORPs manage social pension security, not asset management per se, although managing the funded parts of pensions is necessary for actual payments,” he said.
A spokesman at EIOPA confirmed to IPE that the main objective of the stress test is to “assess the resilience of IORPs to adverse market developments”, such as a prolonged low-interest-rate environment.
He said the stress test would cover a “representative sample” of all types of IORPs in the EU, including defined benefit, defined contribution and hybrid schemes.
The spokesman pointed out that the test was part of the regulator’s remit to “conduct regular stress tests for IORPs and insurance undertakings”, and that there was “no relation with the review of the IORP Directive” scheduled for 2018.
Helmut Aden, chairman at the VFPK, Germany’s association for company pension funds, said the stress tests would reveal EIOPA’s hand on which method it preferred for calculating additional capital requirements.
He said “all signs pointed to the introduction of such requirements for IORPs in future”, but he questioned the use of stress tests in the current market environment.
“It is more than questionable to talk about a mark-to-market approach when the market is massively manipulated by politics,” he said.
Germany’s other pension fund association, the aba, also called on the European watchdog to apply the stress tests “responsibly”.
Klaus Stiefermann, managing director of the association, warned that pension funds needed money and resources for the tests, and argued that they should only be put in place if the results provided valuable information.
He also pointed to the “major political impact” of such tests and called on EIOPA to make use of them “as responsibly as possible”.
The Dutch Pensions Federation said it was not surprised EIOPA wanted to link a stress test to a second quantitative impact study (QIS), as this would “make the conditions comparable”.
But the industry organisation said it expected any second QIS would again conclude that quantitative demands at European level were “complex”, and that the introduction of the holistic balance sheet (HBS) would “prove difficult”.
It also reiterated its view that the pensions industry would require “ample time to thoroughly map out the impact of the HBS”.