EUROPE – Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), has argued that the ‘holistic balance sheet’ (HBS) approach for occupational pensions should be seen as a “prudential supervisory assessment tool”, rather than a “usual” balance sheet based on generally agreed accounting standards, and called for the development of a common third pillar in Europe.

In the opening speech at the EIOPA conference in Frankfurt today, Bernardino referred to the White Paper on Pensions published by the European Commission in February this year, which sets out a number of initiatives for the pensions industry in the coming years.

Bernardino said occupational schemes should have sufficient resources to meet their promises using a reasonable but realistic and transparent framework.

“Taking due account of the diversity of IORPs, we proposed the concept of a holistic balance sheet that will enable the consideration of the various adjustment and security mechanisms in an explicit way,” he said.

“This will allow a better understanding of the economic value of assets and liabilities and will give an indication of where the risk is and who bears it.

“The holistic balance sheet should be seen as a prudential supervisory assessment tool rather than a ‘usual’ balance sheet based on generally agreed accounting standards.”

Bernardino went on to say that any occupational pensions solvency regime should be based on the holistic balance sheet and incorporate appropriate periods for the achievement of funding targets.

It should also take into account the nature of the pensions promise, the duration of liabilities and other elements such as sponsor support.

“It should also be sufficiently flexible to deal with short-term volatility and avoid pro-cyclical behaviour – by using a corridor approach, for example, and allowing appropriate recovery periods.”

EIOPA is currently conducting the first quantitative impact study (QIS) for the implementation of a holistic balance sheet approach within the revised IORP Directive.

Bernardino said EIOPA expected to finalise the report on the QIS findings in the spring of 2013.

With regards to a common third pillar in Europe, Bernardino called for an “exploration” of an EU-wide retirement savings product.

“The current framework applicable to third-pillar products is very much fragmented, with a number of different vehicles being subject to different types of EU regulations,” he said.

“There are merits in developing an EU-wide framework for the activities and supervision of individual retirement savings, containing both prudential and consumer protection measures.”

According to Bernardino, the EU retirement savings product could be developed to finance individual or collective DC plans and should “clearly” differentiate from other types of investment products by being focused on the long-term nature of their objective – retirement savings – and “avoiding the traps” of the short-term horizon.

“It should be based on a simple framework, allowing for reduced cost structures, and be managed using robust and modern risk-management tools,” he said.

Bernardino added that this product should rely on clear and transparent governance structures, as well as provide full transparency to its members and beneficiaries.

It should also have access to a European passport allowing for cross-border selling, he said.

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