It is important not to be diverted from the serious discussion of ensuring schemes are able to pay benefits.
Pension funds must not depend on sponsor support to fulfil benefit promises, the chairman of EIOPA warned, as the supervisor defended its plans to stress test the sector.
Gabriel Bernardino warned at the PensionsEurope conference in Frankfurt against reliance or dependence on sponsor support to fund any promises. He said he did not see a contradiction between using sponsor support as a balancing item and criticising over-reliance on the sponsor to meet obligations. “What we are saying, basically, is that, when you have a strong sponsor, then you can use it as a balancing item,” he said. “If that’s not the case, then, of course, you will need to go deeper and take into account what is happening in the company itself – the probability of generation of future cashflows.”
He warned against getting distracted from the “serious discussion” of pension funds’ ability to fund all pension promises. “When we look at an evaluation of a pension commitment, and you see that 25-30% of the liabilities is covered by sponsor support, and when you then look to the real company, which is in there generating cashflows and able to create jobs, does this balance? Is it possible?” He reiterated that EIOPA’s intent was not to “kill” pension funds but rather to ensure the security of benefits.
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