On Thursday 14 December, PensionsEurope, which represents the national state pension funds, called into question the methodology used by the European Insurance and Occupational Pensions Authority (EIOPA) in its 2017 stress test, the results of which were published on Wednesday.
In its stress test, EIOPA assessed the resilience of 195 institutions for occupational retirement provision (IORP) from 20-member states against an unfavourable market scenario, combining a drop in default-free interest rates and a drop in assets held by the IORPs.
According to PensionsEurope, the prudential rules in force at national level do not support EIOPA's conclusions on a number of points. For instance, while the EIOPA report states that IORPs offering defined services and hybrid pension schemes have insufficient assets overall to cover their liabilities, PensionsEurope observed that in the national balance sheets, the assets of European IORPs offering these schemes exceed their liabilities in most countries. Belgium, Luxembourg and Sweden stand out with aggregated assets ranging between 139% and 153% of their liabilities, the organisation reports.
The reason for these differences in results, PensionsEurope argues, lies in the methodology selected by EIOPA to carry out this test, which gives only a snapshot of the liabilities by valuing them on the basis of the default-free interest rates. In reality, IORPs invest in the real economy, in growth and in riskier assets and, in both the short and the long term, have considerably higher yields than the default-free interest rates, the organisation explained. Their ability to manage their liabilities is therefore considerably better than the results presented by EIOPA suggest, it concludes.
“EIOPA's own methodology is not fit for purpose and it would be much more useful to use a cash flow analysis instead. This means looking at how much money goes out, how much comes in, is there a problem, when and how can the IORP deal with it”, said its Secretary General, Matti Leppälä.
The organisation went on to announce that it was to publish a position paper on this stress test in February or March 2018, with specific proposals for a method based on a cash flow analysis. (Original version in French by Marion Fontana)