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The stress test will assess the resilience of IORPs and their pension schemes to adverse market scenarios and a longevity scenario. The exercise will be conducted in seventeen European countries with material IORP sectors covering at least 50% of their national market.
The stress test covers both defined benefit (DB) schemes and defined contribution (DC) plans. IORPs providing DB schemes have to calculate the impact of adverse scenarios on a common, holistic balance sheet and their national balance sheet. A dedicated satellite module for DC IORPs analyses the effects of a variety of shocks on future retirement income of three representative plan members, which start to receive pension benefits respectively 5, 20 and 35 years from now.
The stress test will provide insight and raise awareness of the occupational pensions' sector risks and vulnerabilities, while potential transmission mechanisms of IORPs to the rest of the financial sector and the real economy will also be evaluated.
The quantitative assessment will gather data of IORPs on potential uses of the holistic balance sheet within an EU-wide supervisory framework. The outcomes will support EIOPA in further developing its Advice to the European Commission on EU solvency rules for IORPs. EIOPA expects to deliver its Advice to the European Commission in March 2016.
The selection of the IORPs which will be finally involved in every jurisdiction will be made by national supervisors. They will keep as well the prerogative of the direct contact with IORPs for the data submission, during the quality assurance phase to deal with any validation issue, and during the Q&A process, which EIOPA will have in place during the exercise with weekly updates on its website.
Gabriel Bernardino, EIOPA’s Chair: “Pension funds are already experiencing a challenging environment with low interest rates and rising life expectancy. A key vulnerability for the occupational pensions sector is a prolonged period of low interest rates combined with a fall in asset prices due to a re-appraisal of risk on financial markets. The stress test will retrieve valuable information on the sensitivity of IORPs, sponsoring undertakings and members and beneficiaries to such a scenario. ”
Occupational pensions stress test