1.3 Further EIOPA work on the HBS

 

EIOPA Opinion on a Common Framework for Risk Assessment and Transparency for IORPs

On 14 April 2016 EIOPA published the Opinion to EU Institutions on a Common Framework for Risk Assessment and Transparency for IORPs as well as the results from the Quantitative Assessment carried out in summer 2015 (Annex 2 Results of the quantitative assessment).

The opinion to EU institutions - the Commission, the Council and the Parliament – is based on EIOPA’s own initiative work, and explicitly does not intend to alter the Proposal for the IORP II Directive. So far, work in this area was carried out under the term „Holistic Balance Sheet“ (HBS), while now EIOPA refers to a „common framework“ for IORPs.

EIOPA describes this common framework, which would be introduced in addition to national risk management requirements, as follows: “Under the common framework, IORPs would have to value the common framework's balance sheet on a market-consistent basis and include all security and benefit adjustment mechanisms, including: Legally enforceable and non-legally enforceable sponsor support; Pension protection schemes; Conditional benefits; Discretionary benefits; Ex ante benefit reductions; Ex post benefit reductions; Benefit reductions in case of sponsor default. Technical provisions as used in the common framework should be calculated using a risk free discount rate and include a risk margin for liabilities that cannot be replicated on financial markets.” (Paragraphs 96-97)

EIOPA refrains from suggesting to harmonise capital or funding requirements for IORPs at this point in time. The aim of the common framework is to assess risks and to foster transparency.

In addition, EIOPA also published an Annex 1 Technical part and an Annex 3 Impact assessment. PensionsEurope comments in a press release on EIOPA’s Opinion.


 

EIOPA publishes IORP Stress Test Report 2015

On 26 January 2016 EIOPA has published the IORPs Stress Test Report 2015 and, accomanying the report, a press release, FAQ and the presentation from the press conference. The German national supervisor BaFin also published a Notice (in German). The PensionsEurope Position Paper on EIOPA’s IORP Stress Test 2015, with input from aba members, takes a closer look at EIOPA’s report.


 

aba consultation response: “Further Work on Solvency of IORPs“ (Deadline: 13 January 2015)

As in previous consultation responses, the aba also shows in this response why the Holistic Balance Sheet (HBS) proposed by EIOPA is neither suitable nor necessary for occupational pensions and that it should not be introduced. We are strictly against additional requirements which make occupational pensions more expensive, but not safer. Instead, we call for a supervisory regime tailored to IORPs. To achieve this, EIOPA should adequately recognise national social and labour law which protects members and beneficiaries of occupational pensions. According to the aba, the HBS would lead employers to offer less and less defined benefit pension promises and retreat from occupational pensions where possible. This is neither in the interest of the employees nor in that of politicians. In addition it goes against the White Paper from 2012, which called for “adequate, safe and sustainable pensions”.

In addition to answers to the 111 questions (response in English), the aba has also published a paper summarising the main points (in German).

PensionsEurope has also submitted a response to the consultation.


 

EIOPA publishes consultation “Further Work on Solvency of IORPs“

In October 2014, EIOPA published a Consultation Paper on Further Work on Solvency of IORPs containing 111 questions regarding the Holistic Balance Sheet (HBS) approach. 2012 already saw a Quantitative Impact Study (QIS), which was followed in 2013 by a consultation with a focus on sponsor support (see below to read the aba response). The current paper builds on the results from the QIS and the previous consultation.

The current consultation on the one hand addresses the valuation of individual items of the HBS, on the other hand it discusses potential supervisory responses. The part on valuation looks at contract boundaries, discretionary decision-making processes, sponsor support and security mechanisms (in Germany: Pensions-Sicherungs-Verein auf Gegenseitigkeit, PSVaG). The second part addresses the potential supervisory consequences of the HBS.

In addition to the consultation paper, EIOPA published a Mapping Exercise for Further Work on Solvency of IORPs which takes stock of the current national rules. Based on several surveys of EIOPA members, the report gives an overview over the legal requirements of the different Member States regarding i.a. sponsor support, solvency requirements, discretionary mechanisms employers or the IORP can use, benefit reduction mechanisms and contract boundaries.

The consultation is open until 13 January 2015. In the meantime, EIOPA will be working on the technical specifications for the next IORP QIS with the draft technical specifications expected for the first quarter of 2015.


 

aba response to EIOPA Consultation on sponsor support (Deadline: 31 October 2013)

As in previous responses and position papers, the aba stressed also in this paper that a Solvency II framework is not adequate for IORPs. The main points of criticism regarding the calculation of sponsor support are:

  • The generalisations are not really simpler and in practice not adequate.
  • Which consequences are tied to the results?
  • Where do the parameters for the calculations come from?
  • The data requirements are difficult to fulfil, particularly for MES and industry-wide schemes.
  • Sponsor support and insolvency protection by a pension protection scheme should also be considered. 

PensionsEurope has also submitted a response to EIOPA.


 

     

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