PensionsEurope, the lobby club for European pension funds, has asked pensions regulator EIOPA not to publish the names of pension funds that participate in next year’s stress test.

“We are not in favour of disclosing the names of participating IORPs [pension funds], as (…) it is not clear what would be the benefits. The focus of the stress test is on financial stability, not on the solvency of individual IORPs,” Pensions Europe wrote in its response to the consultation of EIOPA’s Methodological Framework for Stress-Testing IORPs (Institutions for Occupational Retirement Provision).

The response was written jointly with AEIP, the European Association of Paritarian Institutions.

In the previous stress test, conducted in 2019, EIOPA published a list of participating pension schemes. PensionsEurope, however, wants this list to remain undisclosed this time.

“We fear this approach [to publish the list of participating IORPs] might damage public opinion and lead to mistrust for members and beneficiaries concerned; this happened in 2019 in some countries after publication of the stress test report,” the consultation response said.

Such concerns had predominantly, but not exclusively, been of German origin, PensionsEurope CEO Matti Leppälä clarified to IPE.

According to Leppälä, some German company-sponsored IORPs with DB arrangements were concerned by the wording of EIOPA’s press release in 2019, when it said that “market risks under the adverse scenario would lead to substantial benefit reductions and increase of sponsor support”.

Leppälä said: “This sounds alarming and there was a list of participating IORPs. There were concerns of what the impact would be.”

Horizontal approach

The previous EIOPA stress test in 2019 for the first time assessed the investment behaviour of both defined benefit and defined contribution sectors together.

PensionsEurope has urged EIOPA to “recognise the shortcomings and incomparability between scheme types and countries” when using this so-called horizontal approach.

“Moreover, the coverage of pure DC IORPs should be assessed cautiously,” it added, “given the quite limited relevance of the findings and the high costs related to the stress test that, in the end, will be fully borne by members”.

PensionsEurope and AIEP also wrote in their consultation response that “publication of the individual names of participating IORPs may put pressure on these IORPs to publish at least parts of their stress test results”.

According to the two organisations, this “cannot be the aim of a consolidated pan-European stress test exercise having a macro-prudential background”.

Leppälä said PensionsEurope does not require a list of participating institutions itself either. “We don’t receive nor expect to receive the lists of participating IORPs,” he said.

Risk-free return

PensionsEurope and AEIP also called on EIOPA to primarily use the long-term expected return to calculate members’ and beneficiaries’ benefits.

“A calculation at the risk-free return can only come at the second place to give an indication of the risk, but not to calculate the expected benefit or the expected replacement income at retirement,” they said.

“IORPs do not invest in a risk-free world, but as long-term investors they receive a risk premium (as well as an illiquidity premium) for the risk (and illiquidity) they accept.

”This should be correctly reflected in the results of the projection of the cash flows as well as in the results of the stress test.” 

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