EUROPE - The consultation paper on IORP Directive's quantitative impact study will shed little light on the directive's true impact on pension funds because it fails to specify what its calculations would be used for, Punter Southall has warned.

In a briefing note, the consultancy points out that the consultation paper - launched by the European Insurance and Occupational Pensions Authority (EIOPA) last month - simply sets out the methodology and formulae for the valuation of assets and liabilities.

It said the scope of the QIS - which aims to assess the potential impact the 'holistic balance sheet' (HBS) approach would have on occupational pensions if it were to be introduced into the revised IORP Directive - was too limited and failed to clarify the ramifications of such measures for pension schemes.

Subsequently, trustees and employers will be no closer to knowing what to do when their balance sheets do not balance.

"Would the numbers in the balance sheet simply be for the information of the Pensions Regulator (TPR), members and other stakeholders, or would employers be required to make good any deficit - and, if so, over what period?" the consultancy asked in its note.

"This means the QIS will not enable pension schemes to understand what the real impact on them would be."

Punter Southall also noted that EIOPA's advice sent to the European Commission in February did not specify how the sponsor covenant or PPF should be valued.

"EIOPA has had to specify an approach for the purposes of the QIS, but says the techniques specified for the QIS should not be assumed to be the ones that will be implemented in practice," it said.

It also questioned the way EIOPA was seeking to assess the valuation of the solvency capital requirement.

"This calculation of the solvency capital requirement (SCR) is copied directly from the latest QIS for Solvency II with a few adjustments to reflect the nature of pension scheme liabilities," it said.

"The SCR will be calculated by testing the scheme's resilience to shocks arising from risks such as market risk - interest rate, equity and currency risks - pension liability risk - mortality, longevity, expense and option risks - and counterparty default risk - sponsor default," it said.

Punter Southall argued that the QIS would not cover the implications of EIOPA's advice on such areas as governance, disclosure to members or defined contribution schemes, "although clearly these proposals could also lead to increased costs for employers".

Earlier this month, the EIOPA stakeholders group voiced similar concerns. In a draft response to the consultation paper on the QIS, it said the proposed document failed to measure the "real" impact, or shed light on a supervisory prudential framework.

Topics