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IPE special report May 2018

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Green MEP alarmed by results of EIOPA pension fund stress tests

The results of the stress tests of European occupational pension funds carried out by EIOPA underscore the need for effective regulation to protect pensioners and companies, Green Party MEP Sven Giegold has said.

Giegold is the financial and economic policy spokesperson of the Greens/EFA group in the European Parliament, and a member of the Economic and Monetary Affairs Committee (ECON).

Giegold said the results painted “a gloomy picture”, revealing that defined benefit occupational pension schemes faced a “dramatic” funding shortfall.

“This stress test has revealed funding gaps for occupational pensions,” he said.

“EIOPA has underpinned worse-case misgivings with numbers.”

He pointed to the €773bn figure that emerged as the deficit facing pension funds under EIOPA’s second stress scenario and said this illustrated the funding gap in accruals facing EU occupational pension schemes.

“National accounting standards,” he added, “conceal the funding gaps included in the balance sheets of many companies.”

Giegold said pension schemes were weaker than the stress tests showed, arguing that they did not test a realistic scenario of enduring low interest rates and longer life expectancy.

He also took issue with EIOPA’s use of a 4.2% risk-free discount rate for longer maturities (the ultimate forward rate) and said EIOPA’s statement on the results downplayed the outcome of the tests.

He called for an end to a “head-in-the-sand” policy on life insurance and occupational pensions, and for “an open and honest” debate in the EU and national parliaments on “the lack of funding due to low interest rates”.

“It is unacceptable to just pretend problems do not exist,” he said.

Giegold said companies should not become hostages to pension promises, “expected to make up the gaps from profits that will be under increasing pressure”.

They need to be able to invest while it is also “equally unacceptable to simply assume hidden state guarantees”, he said.

Giegold’s reaction to the stress tests contrast with those of several national regulators and pension fund associations, many of which concluded that the results showed that pension schemes posed no risk to financial stability.  

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