The European Insurance and Occupational Pensions Authority (EIOPA) has shelved plans for new solvency requirements for pension schemes, but is proposing to push ahead with a new reporting regime that would cost £167m a year to administer.
Publishing its opinion on a common framework for risk assessment and transparency for Institutions for Occupational Retirement Provision (IORPs), which is addressed to legislators at the European Parliament and Council, EIOPA has recommended that pension funds enhance transparency through public disclosure of a market- consistent balance sheet and the outcomes of a standardised risk assessment.
The Pensions and Lifetime Savings Association (PLSA) has applauded EIOPA’s decision not to continue its work on pensions solvency, known as the ‘Holistic Balance Sheet’, but has slammed the idea of a new reporting regime as a costly exercise that will deliver no benefits to members.
EIOPA chairman Gabriel Bernardino says: “This Opinion presents a major step forward towards realistic, risk-sensitive information on the financial situation of pension funds. EIOPA’s recommendations to modernise the European regulation of pension funds aim at supporting the occupational pensions sector to meet its current and future challenges.
“Relevant transparent disclosure will trigger a dialogue on the long-term sustainability of occupational pension promises and encourage timely adjustments. As such, our recommendations contribute to the protection of pension scheme members and beneficiaries and to a fair distribution of shortfalls between generations”.
PLSA chief executive Joanne Segars says: “EIOPA’s decision to end its work on solvency marks an important development in the long-running debate about a solvency-based funding regime for pensions. It is good news for pension schemes in the UK and Europe and a result our member pension schemes have campaigned tirelessly to reach.
“EIOPA now proposes a new reporting regime for pension funds, to run alongside existing regulation. The report acknowledges this would add €210 million (£167 million) a year to costs. It would cause unnecessary confusion without delivering any benefit to scheme members.
“We believe there are more pressing priorities for EIOPA to pursue such as extending workplace pension saving to the 60 per cent of EU citizens who have no access to it at present. Abandoning the solvency project is a good decision, but EIOPA should now go further and drop the Holistic Balance Sheet altogether.”
The PLSA says the latest figures for the Holistic Balance Sheet show that, if implemented in the UK, a solvency-based system would have increased the combined deficit of defined benefit (DB) pension schemes to €967 billion (£770 billion) – from €318 (£253 billion) under the current UK regime.
PensionsEurope secretary general Matti Leppälä says: “It is good that EIOPA is not in favour of a harmonised solvency framework for IORPs. PensionsEurope has been against this idea all along and continues to do so. We also welcome that EIOPA has taken into consideration the diversity of IORP landscape across Europe. Requirements have to be proportional and small and medium size IORPs should not be overly burdened with any new risk management requirements.
PensionsEurope chairman Janwillem Bouma says: “Risk management is essential for IORPs and they regularly carry out their own stress tests and scenario analyses, such as asset and liability, management studies, as part of their own risk management processes. EIOPA proposes an additional framework, which we find unnecessary and it is costly.”