The European Insurance and Occupational Pensions Authority (EIOPA) is currently gathering data from pension plans across Europe as part of its stress tests for defined benefit (DB) and defined contribution (DC) pension plans and its quantitative assessment of the financial impact of the holistic balance sheet on DB plans. Pension plans are being encouraged to take part in this exercise to ensure that EIOPA’s findings are informed by as accurate and comprehensive data set as possible. To assist UK plans with this, the Pensions Regulator has issued a guide to help UK pension plans prepare the data that is needed.

What is the stress test?

The EU wide stress test for DB and DC pension plans is designed to test the resilience of DB plans to adverse market conditions and increasing life expectancy and to identify the potential vulnerabilities of DC plans. EIOPA plans to publish a report of the findings from this exercise in December 2015.

What is the quantitative assessment?

EIOPA’s quantitative assessment is part of the further work on solvency for IORPs which EIOPA is taking forwards on its own initiative. This exercise is designed to assess the financial impacts of using an EU wide solvency assessment regime based on the holistic balance sheet on DB plans and to assess the appropriateness of the various proposals for the use of the holistic balance sheet set out in the consultation which EIOPA conducted in late 2014. The results of this exercise will be used by EIOPA to inform its advice to the European Commission (which it is due to deliver in early 2016) on a potential EU solvency regime for DB plans.

What do pension plans need to do?

Pension plans are not required to take part in these exercises. However, given that the UK has one of the largest occupational pension sectors in Europe and the potential impact that any new solvency requirements could have on DB plans in the UK, it is important that UK plans are properly represented and that the impacts of a possible future solvency regime on the UK are clearly shown, so that EIOPA’s advice to the Commission takes full account of this.

Plans are free to carry out the full calculations as set out by EIOPA and send the results to the UK Pensions Regulator. To help encourage participation and reduce the burden, the UK Pensions Regulator has issued a guide setting out various simplified approaches that plans can also take. These are:

  • a “basic option”, which involves plans sending the Regulator some limited but essential data inputs to allow it to combine these with its existing data
  • a “preferred option” requesting more granular data, which the Regulator believes should be relatively easy to obtain for most plans and will materially improve its results, and
  • a “more detailed option” that involves plans carrying out some of the calculations themselves on a best efforts basis.

The Regulator is asking plans to adopt the “preferred option” where the relevant data is easily available and it has tried to design this option to reflect as closely as possible existing data reporting and common practice amongst plans. Plans are encouraged to follow the more detailed approach where it is proportionate for them to do so.

Deadline for submitting data

The deadline for submitting data to EIOPA is 10 August 2015. Therefore, the Regulator has asked UK plans to submit data to it (using a spreadsheet which it has produced) by 3 August 2015.

Queries or more general questions about participating in these exercises can be sent to the Regulator at eiopaexercises@thepensionsregulator.gov.uk.

Comment

Commenting on the stress test and quantitative assessment, Francois Barker, Head of Pensions at Eversheds says, “These exercises are being carried out on EIOPA’s own initiative and are a further demonstration of EIOPA's determination to continue to pursue the solvency agenda even though the holistic balance sheet is not part of the proposed new IORP Directive which is currently being considered by the European Parliament.”

It is important that UK plans take part and submit data to the Pensions Regulator so that the UK position is properly represented. In particular, it is crucial that the impact of the holistic balance sheet on UK plans is properly understood and taken into account by EIOPA and the other European institutions as the debate around new solvency rules for IORPs continues.”

These exercises also reflect the increasing impact of EIOPA and European regulation on UK pension plans. The new IORP Directive is due to be finalised next year. It is expected to contain new requirements on disclosure and governance and further provisions designed to encourage the establishment of cross-border arrangements.”