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European insurance regulator: Transparency will help tackle pension deficits

Greater transparency will help solve the problem of pension deficits at occupational pension institutions, according to the head of EU insurance regulator European Insurance and Occupational Pensions Authority, or EIOPA.

The results of EIOPA's biennial occupational pensions stress test, published Dec. 13, showed that the defined benefit and hybrid occupational pensions sector across 20 member states had a collective deficit of €349 billion before the stress scenario was applied in the test, which jumped to €702 billion under the stress scenario. Defined benefit and hybrid pensions institutions' assets fell short of liabilities by 20% when unstressed and by 38% with the stress scenario applied.

These shortfalls would need to be covered by increased sponsor support or by cutting benefits to pension beneficiaries, which EIOPA said could have a knock-on effect on the economy.

"The issue is that some of these [pension] promises [to beneficiaries] are not sustainable in the low interest rate environment we have now," EIOPA's chairman, Gabriel Bernardino, told journalists on Dec. 13.

He said the solution to the problem would vary geographically, because the schemes are mandatory in some countries and left more up to companies in others.

But he said that, in both situations, transparency about the associated risks "can only help."

"If we don't recognize the risks, we can't have a better situation," he said. "Our intention and our message here is that more transparency will help to take decisions and to close the gaps that are there, and to have a discussion about the sustainability of those gaps."

Bernardino said sitting and waiting for market conditions to improve was not a solution to tackling pension deficits and would burden future generations with the problem.

"If your regime doesn't provide any incentive to confront the realities sooner [rather] than later, if you delay taking up more ardent measures and you are just hoping that future income from investments will be much better than the ones the current projections will give you in order to close those gaps, [you] are kicking the can down the road," he said.

He said EIOPA would look to provide more information on individual pensions institutions in future stress tests.

"We want to improve the transparency and disclosure step by step," he said. "In this exercise we were mostly focused on the aggregate impact at the European level and trying to see for the first time the impact this could have on the economy. But going forward we really are interested and we see value in having more transparency and publishing more individual results."

He noted the need for care when publishing results for individual institutions because of the sensitivity of the information. But he said it is the duty of public institutions looking at these issues to provide information that is relevant for the decisions to be taken by the different stakeholders.