Pension funds must not depend on sponsor support to fulfil benefit promises, the chairman of the European Insurance and Occupational Pensions Authority (EIOPA) has warned, as the supervisor defended its plans to stress test the sector.
Gabriel Bernardino told the PensionsEurope conference in Frankfurt it was important not to be diverted from the serious discussion of ensuring schemes were able to pay benefits, and warned against reliance or dependence on sponsor support to fund any promises.
His warning comes weeks after the supervisor published a consultation on the holistic balance sheet (HBS), which saw it allow sponsor support as a balancing item to address any deficit, dependant on certain requirements being met.
Asked by IPE, the chairman said he did not see a contradiction between using sponsor support as a balancing item and criticising over-reliance on the sponsor to meet obligations.
“What we are saying, basically, is that, when you have a strong sponsor, then you can use it as a balancing item,” he said.
“If that’s not the case, then, of course, you will need to go deeper and take into account […] what is happening in the company itself – the probability of generation of future cashflows.”
He warned against distracting from the “serious discussion” of pension funds’ ability to fund all pension promises.
“When we look at an evaluation of a pension commitment, and you see that 25-30% of the liabilities is covered by sponsor support, and when you then look to the real company, which is in there generating cashflows and able to create jobs, does this balance? Is it possible?”
He reiterated that EIOPA’s intent was not to “kill” pension funds but rather to ensure the security of benefits.
Meanwhile, Justin Wray, head of EIOPA’s policy unit, defended the authority’s plans to stress test the European pensions sector.
Bernardino has previously said the stress tests would cover defined benefit, defined contribution and hybrid schemes, and determine whether funds were pro or counter-cyclical investors based on the last decade’s worth of investment data.
For his part, Wray noted that the majority of the large IORP markets – 13 of 19 – already required pension funds to undergo stress tests.
The chairman would also not be drawn on EIOPA’s view of the latest IORP II compromise draft, which saw member states agree to strip the European supervisor of responsibility for the risk-evaluation for pensions (REP) tool.
Bernardino noted that EIOPA was obviously not party to any discussions occurring between member states at the Council of the EU.
He said he would await the deliberations of both the council and the European Parliament.
For more from Gabriel Bernardino, see IPE’s interview in the upcoming December issue of IPE magazine