National supervisors are expected to assess the cost efficiency of IORPs, the affordability for sponsors and the value for money offered to members and beneficiaries... The supervisory approach to DC products needs to ensure that risks borne by DC IORPs are appropriately monitored and managed.
The European Insurance and Occupational Pensions Authority (EIOPA)
published today two Opinions on the supervisory reporting of costs and
charges by Institutions for Occupational Retirement Provisions (IORPs)
and the risk assessment of IORPs that provide defined contribution (DC)
schemes.
Opinion on the supervisory reporting of costs and charges of IORPs
Costs and charges can have a substantial cumulative impact: a 1%
increase in costs can have a 20% impact on the amount of pension
received. Hence, in order to protect members and beneficiaries, a
transparent and comprehensive view of all costs and charges is essential
for IORPs, social partners and supervisors. To address this, the
Opinion sets out expectations on the supervisory reporting of costs and
charges of IORPs.
It provides a classification of costs to be reported to national
supervisors and introduces a practical guidance for supervisors and
IORPs - complete with reporting templates - on how to collect data. It
lays out principles for the compilation of cost information and
stipulates that not only direct but also indirect costs incurred by
asset managers and investment funds should be reported.
The Opinion also gives guidance on the supervisory use of cost data.
National supervisors are expected to assess the cost efficiency of
IORPs, the affordability for sponsors and the value for money offered to
members and beneficiaries. The outcomes of the comparative analysis
should be considered within the supervisory review process, including in
the dialogues with the IORPs’ management boards.
Opinion on the supervision of risk assessment by IORPs providing DC schemes
Members are more likely to suffer adverse consequences if risks
crystallise in defined contribution (DC) pension products compared with
defined benefit products. The supervisory approach to DC products needs
to ensure that risks borne by DC IORPs are appropriately monitored and
managed.
The Opinion fosters consistent supervisory practices by providing
guidance on two aspects of risk management by DC IORPs. Firstly, the
Opinion calls for a greater use of quantitative elements when managing
operational risks, supplementing EIOPA’s existing opinion.
Secondly, it expects DC IORPs to conduct long-term risk assessments by
using projections of members’ future retirement income, comparing the
results with the established risk tolerance of the members and
beneficiaries, and as appropriate considering the IORP’s investment
strategies.
Background
The two Opinions are applicable immediately and addressed to national
competent authorities as defined in Article 4(2) of the EIOPA
Regulation. EIOPA is mandated by Article 29(1)(a) of its Regulation to
issue supervisory Opinions to foster a consistent and effective
application of supervisory practices across the European Union. In line
with Article 29, EIOPA analysed the potential costs and benefits
relating to the opinions using EIOPA’s impact assessment methodology.
Moreover, both opinions have been subject to a public consultation
between 22 April and 22 July 2021. The Opinions are accompanied by
impact assessments, feedback statements on responses received from
stakeholders and the resolutions of individual stakeholder comments.
EIOPA
© EIOPA
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