IOPS published revised principles of private pension supervision
30 November 2010
The objectives of private pension supervision focus on protecting the interests of pension fund members and beneficiaries by promoting the stability, security and good governance of pension funds.
Pension supervision involves the oversight of pension institutions and the enforcement of and promotion of adherence to compliance with regulation relating to the structure and operation of pension funds and plans, with the goal of promoting a well functioning pensions sector. In addition, achieving stability within the pension sector is an important part of securing the stability of the financial system as a whole (as investments made by pension funds have a major impact on the real economy in many countries). Pension supervision should be mindful of financial innovation.
The provision of pensions is of fundamental economic and social importance, ensuring the successful delivery of adequate retirement income. The effective supervision of pensions, and of the institutions that provide pension products and services, is required to ensure the protection of consumers – a necessary task with any financial product being sold to non-professionals. Pension supervision is required to achieve the degree of protection needed to support privately managed savings and is a means to help pensions adapt to market risks. Such risks can be particularly problematic with regard to pensions due to the characteristics of these financial products, such as:
· the long-term nature of the contract involved, and the subsequent requirement for incentives or even compulsion to overcome individual’s ‘myopia’ towards long-term savings;
· their coverage of a wide social and economic range of the population (particularly where incentives or compulsion are applied);
· the low risk tolerance of pension fund members and beneficiaries, as subsistence rather than discretionary savings is often involved;
· the complexity of the products, involving tax issues, assumptions over future salaries, longevity, difficulty in the valuation of assets and liabilities etc. – a complexity which is beyond the financial literacy of most investors and which gives rise to asymmetrical information between pension providers or financial intermediaries and consumers;
· sometimes limited competition and choice, with decisions often made collectively by employers and/ or unions;
· their potential impact on financial market and economic stability given their large and increasing size relative to financial markets and countries’ GDP.
© IOPS - International Organisation of Pension Supervisors
