The Dutch Pensions Federation has said EIOPA’s use of the holistic balance sheet for stress tests has led to confusing results.
Responding to EIOPA’s stress tests for pension funds, the industry group suggested EIOPA’s methodology seriously overvalued the level of possible rights cuts, while undervaluing the expected indexation. According to the Federation, EIOPA’s estimation of rights cuts was €155bn – based on a single hypothetical Dutch pension fund with €1trn in assets and €907bn in liabilities – while under the rules of the financial assessment framework, expected cuts would be no more than €4.2bn.
On the other hand, the valuation of indexation by the European supervisor amounted to €84bn, against €193bn of expected inflation compensation under the nFTK, it argued. In the opinion of the Federation, such results carry a serious risk of miscommunication, “as many workers and participants would, albeit incorrectly, interpret EIOPA’s ‘market values’ as expected values”. It added that it was nearly impossible to explain the large differences between the results from the HBS approach and the projections of the asset-liability management study based on the nFTK.
The Pensions Federation also noted that the stress tests were expensive and labour-intensive for pension funds, and questioned whether there were any benefits of such tests for pension fund participants.
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