Stephan Nellshen, the chief executive officer of Bayer Pensionskasse, is calling for minimum standards at European Union level for managing the liquidity risks of Institutions for Occupational Retirement Provisions (IORPs).
Currently, varying traditions and conventions regarding the use of derivative instruments expose pension schemes to margin calls and liquidity risks in the event of interest rate and currency shocks, Nellshen said.
The use of derivative instruments also varies between individual IORPs, the CEO wrote in an article published by BetrAV, the publication of the German occupational pension association aba.
Therefore, a “one-size-fits-all” approach to dealing with liquidity risks, especially at European level, would not work well, the CEO wrote.
He said: “Rather, a principles-based, regulatory approach describing certain minimum standards at a relatively abstract level should be preferred.”
Nellshen’s comments come as the European Insurance and Occupational Pensions Authority (EIOPA) is consulting on the draft opinion on liquidity management for IORPs until 20 December.
EIOPA has identified three possible sources of liquidity risks that warrant monitoring, including margin and collateral calls on derivative positions, early withdrawals of accumulated pensions by plan members, and individual and collective transfers of accumulated pensions.
Nellshen added that it does not make sense to capture liquidity risks within the framework of traditional stress tests for IORPs conducted by the German financial supervisory authority BaFin, which primarily simulates the consequences of losses in market value of assets after shocks, or within the framework of the Common Methodology used by EIOPA.
The most suitable methodology for presenting liquidity risks should depend specifically on the type of obligations of IORPs, he wrote.
Read the digital edition of IPE’s latest magazine
No comments yet