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‘Major weaknesses’ in Belgian pension oversight

BELGIUM – “Major weaknesses” in the supervision of pension funds in Belgium have been identified by the International Monetary Fund.

And there are also issues about equity exposure and the impact of the minimum guaranteed rate, the IMF found.

“Overall the Belgian supervisor the_CBFA showed a high degree of compliance with international standards, although there were some major weaknesses identified in the insurance and pension fund areas, which are being addressed,” the fund said in a report.

These included a virtual lack of onsite inspections and analysis of offsite reports, the absence of a risk-based supervision system and no uniform system for assessing risk exposures, funding levels, and investment strategies.

The CBFA should explore the synergies that exists with insurance and mutual fund supervision, the IMF noted – adding that the implementation of the European directive on occupational pension funds “should provide a good opportunity to effect the necessary changes in this area”.

The IMF noted that the Belgian private pension fund industry is relatively small, but growing in response to generous tax incentives.

Total reserves were a modest €42bn, held mostly in the form of group insurance (75%), with only about €11bn held in the form of pension funds, the IMF stated. It added the importance of pension funds was likely to grow as a result of recent reforms.

“Overall, equities account for nearly half of total pension fund investments, but sufficient information about pension fund liabilities is not available to assess whether such exposure is prudent,” the IMF said.

The fund called for more flexibility in setting the maximum guaranteed rate in life insurance and de-link the guaranteed rates in insurance and pensions to prevent a further build-up of “vulnerabilities”.

It said the “politically sensitive” link between the minimum guaranteed interest rate on funded pensions and the maximum rate on life insurance products “hampers progress”.

The fund called for a significant strengthening of prudential supervision of pension funds. It said the authorities should take advantage of the current benign financial environment to overhaul pension supervision and introduce a risk-based approach.

They should also revisit the issue of externalization of pension obligations with a view to increasing the minimum funding requirements to a more realistic level. And they should also review pension fund governance.

A spokesman for the CBFA was not immediately available.

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