EIOPA will be looking to assess defined benefit (DB) and defined contribution (DC) pension schemes together in future stress tests of the European pension fund sector, it has indicated.
The outlined move echoes a call from specialists in the Dutch pension fund industry that has also found take-up at the European level via umbrella association PensionsEurope.
Publishing the results of the 2019 stress tests, EIOPA said that in future, it wants to “further improve its analytical toolset for stress testing IORPs, extending the horizontal approach and with that assessing the common exposures and vulnerabilities of the DB and DC sectors together”.
Niels Kortleve, chair of PensionsEurope’s working group on stress testing, said this year’s results of the DB and DC stress tests were in each case strongly influenced by one country: the Netherlands for the DB analysis and Italy for the DC segment.
“Considering the continuing shift from DB to DC, a horizontal approach aligning DB and DC parts of the stress test is warranted in order to make the future IORP stress tests more relevant,” he said.
PensionsEurope also indicated that in its view there were still improvements to be made to the stress test methodology despite a new cash flow analysis approach. The Dutch regulator and pension funds pressed for this.
PensionsEurope said it stood ready “to provide its expertise to EIOPA to further define its stress testing methodology in order to address all specificities of the IORPs sector.”
EIOPA said the extended cash flow analysis provided important insights, showing that “IORPs’ financial situation would be heavily affected in the short term, leading to substantial strains on sponsoring undertakings within a few years after the shock and resulting in potential long-term effects on the retirement income of members and beneficiaries over decades (should the short-term effects become permanent)”.
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