The Belgian pension fund sector is highly resilient, even under extremely stressful economic circumstances. That is the message of the results of the European stress test for occupational pension funds, published today.
EIOPA (European Insurance and Occupational Pensions Authority) conducted a stress test among occupational pension funds in 2015, covering 14 countries with a significant pension fund sector. The aim of the stress tests was to enable EIOPA to assess the resilience of the European pension fund sector to shocks in the financial markets. The Financial Services and Markets Authority (FSMA), as supervisor of the Belgian pension funds, is a member of EIOPA.
Sixteen Belgian occupational pension funds took part in this European-wide exercise. The sample selected is representative of the Belgian pension fund sector, as the sixteen institutions among them account for 57 per cent of the total assets under management by Belgian institutions for occupational retirement provision.
The stress test was designed by the European Systemic Risk Board (ESRB) in close collaboration with the European Central Bank and EIOPA. The participating pension funds were subjected to two different stress scenarios, the underlying hypotheses of which were generally adverse economic developments and geopolitical risks with an impact on, among other things, the financial markets, commodity prices, exchange rates, employment level and inflation. A third scenario was intended to examine how longevity risk is managed, with the assumption of a 20 per cent fall in the mortality rate.
The stress scenarios were applied both to the balance sheet figures calculated on the basis of the national solvency framework (National Balance Sheet - NBS), and to the so-called Holistic Balance Sheet (HBS). The HBS is a supervisory instrument inspired by Solvency II. EIOPA developed this instrument in order to value and outline the pension commitments managed by IORPs using a harmonized European methodology. The HBS not only offers an overview of all the protective mechanisms that may be used in order to meet pension commitments in the event of underfunding, such as a protection fund or sponsors' capacity to give additional support, but also indicates the degree to which benefit reductions may be applied in such cases.
The Belgian results of the stress test are positive both under the Belgian solvency regime (NBS) and under the harmonized HBS. The stress test exercise shows, moreover, that the Belgian pension fund sector is, on average, highly resilient even under extremely tense economic circumstances. This result is due principally to the large buffers maintained by the pension funds concerned and/or to the presence of strong sponsors[1].
Belgium is thus one of the top five states that are able to maintain full coverage of their commitments in all stress scenarios.
The EIOPA press release is available on the EIOPA website.