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EIOPA promises 'simplified' stress tests for European pension funds

Gabriel Bernardino, chairman at the European Insurance and Occupational Pensions Authority (EIOPA), has confirmed there will be “simplifications” to the stress tests for pension funds that last year included as many as 18 different scenarios.

Speaking at the Handelsblatt occupational pension conference in Berlin, Bernardino said there would only be two “baseline scenarios”.

He also said EIOPA wanted to ensure more small and medium-sized enterprises took part in the stress tests and specifically called on German stakeholders to participate, as this was “the only way” for the European supervisor “to understand the specifics of German pensions and to get an idea of the system”.

EIOPA’s chairman confirmed that the tests would be held between May and July and be followed by an assessment of the responses.

He said he expected a final report to be published by year-end so that EIOPA could then advise the European Commission on any further steps in Q1 2016.

Bernardino said the stress tests would cover both defined contribution and defined benefit plans, “looking at the effects on different age groups within a pension plan” and testing the resilience of pension systems to “a number of shocks”, including the low-interest-rate environment and longevity.

He promised that any concept to assess sustainability in the pensions system, such as some form of the holistic balance sheet (HBS) approach, would be implemented in a “proportionate way” and take “specifics of individual pensions systems” into account.

For Germany, he highlighted the issues of pension sponsor support and the role of the pension protection fund.

He reiterated he “never said Solvency II should be applied to pensions” but stressed that “we want to provide the supervisory community with a framework to analyse the sustainability of the system”.

Bernardino pointed out that, “if pension promises are assessed to be unsustainable, then local supervisors should get the power to interfere”.

But he added that “this will never be a one-size-fits all approach”.

However, he said he was convinced there would be “no cross-border pension arrangement without a more standardised approach to supervision on a European level”.

And while it should “not be harmonised on all levels”, there should be a more standardised approach to assessing sustainability and funding.

He also pointed to two areas where pension systems across Europe could do with improvement, namely transparency on costs and the particulars of risk-sharing.

“Increasing transparency on risk bearing would create more realistic expectations and help members better calculate for their future,” he said.

With respect to costs, Bernardino said the level of knowledge in the pensions sector was “rather diminished”.

“In many cases,” he added, “not even trustees or the management of pension funds know about all the charges and costs in the plans.”

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