11 February 2013

PensionsEurope: Holistic Balance Sheet Approach

Matti Leppälä, the PensionsEurope Secretary-General and CEO, said: “The methodology of a Holistic Balance Sheet will not be workable as a supervisory tool. It is very sensitive to subjective assumptions, and the interaction between elements of the Holistic Balance Sheet and the Solvency Capital Requirements leads to inconsistency. The Holistic Balance Sheet approach could only try to address whether the financial policy of the IORP is sustainable in the long run. Alternative approaches such as ALM studies or stress-tests, should therefore also be considered to achieve adequate regulation of IORPs across Europe. Even if the European Commission proceeded with the proposal of a Holistic Balance Sheet only in order to address whether the financial policy of the IORP is sustainable in the long-run, there are still some major shortcomings. PensionsEurope has strong doubts about the quality and reliability of the current valuations within the Holistic Balance Sheet. More QISs will be necessary in order to come up with an appropriate valuation of a Holistic Balance Sheet.”

Joanne Segars, Chair of PensionsEurope, said: “The European Commission should not present a proposal for quantitative requirements based on the QIS results. This QIS does not address the most important question: how will the proposed approach be used in practice? As a result, the impact on contributions, employers, employees and the entire economy cannot be measured at this time. However, we do realise the importance of appropriate pension supervision across Europe, especially with respect to minimum standards on governance, risk management and transparency. Therefore, we would advise the European Commission to present proposals for a revised IORP Directive that focus on the Pillar II (qualitative requirements) and Pillar III (disclosure) elements. These proposals should then be thoroughly tested. This QIS shows that more time is needed for Pillar I (quantitative requirements) issues.”

In this paper, PensionsEurope shares the experiences and the opinion of its members arising from the QIS. However, this does not imply that it supports the harmonisation of quantitative capital requirements for workplace pensions across Europe. Workplace pensions are based on social and cultural traditions and strongly linked to statutory public (first pillar) pension provision, which differs between Member States. For this reason, PensionsEurope does not believe that quantitative requirements can be harmonised in an appropriate way. IORPs cannot be regulated in the same way as banks and insurance companies, which have no comparative system to that of first pillar pension provision and little social function.

Based on the experience of PensionsEurope members with this QIS, PensionsEurope advises the European Commission not to develop a proposal for a revised IORP Directive text where quantitative requirements are based on the results of this QIS. PensionsEurope acknowledges the importance of appropriate pension supervision across Europe, especially with respect to minimum standards on governance, risk management and transparency. Therefore, PensionsEurope advises the European Commission to deliver proposals for a revised IORP Directive that focuses on the Pillar II (qualitative requirements) and Pillar III (disclosure) elements. These proposals should then be thoroughly tested. Even before disclosure of the outcome of this QIS, it is clear that more time is needed for Pillar I (quantitative requirements) issues.

Press release

Full position paper

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