A working group of the Regional Consultative Group for Europe of the Financial Stability Board (FSB) has published the results of a study of the functioning, the vulnerabilities and the challenges of private pension schemes.
The Working Group on Private Pension Schemes Resilience conducted the research. This temporary working group of European pension supervisors and central bankers within the FSB’s Regional Consultative Group for Europe studied the impact of the private pension sector in Europe on financial stability.
All types of supplementary pensions (second pillar pensions) and personal pensions (third pillar pensions) managed by insurers, pension funds, banks and other institutions were examined extensively. The FSMA played an active role in the research and drafting of the report.
The FSB report inventories the size and diversity of the European private pension sector, as regards both occupational and personal pensions, and provides an overview of European legislation that can have an impact on the pension sector.
The report recognizes the role of pension institutions as long-term investors and the potential part they can play as a stabilizing force in times of volatility on the financial markets, thereby exerting a favourable impact on the economy and on financial stability.
The report confirms the observation that the principal risks for all parties concerned are the ongoing low interest rate and higher life expectancy, whatever the type of pension scheme.
The research points to considerable differences among private pension schemes across Europe and the context in which they operate. As a result, the extent to which the risks are spread among the various stakeholders likewise differs. But regardless of the regulatory framework and the type of pension scheme, stakeholders in a pension scheme are never immune from the effects of what is happening to the other stakeholders. The report thus proposes that, whenever necessary, adjustments be made to the pension schemes in order to ensure their sustainability.
The report urges that promotional materials for pension products should mention that these products can play a stabilizing role with regard to the financial markets. Maintaining a multi-pillar pension system, in which private pension schemes supplement the public (state) pensions, contributes to spreading the risks and helps promote the stabilizing role of pension schemes.
The report is available on the website of the FSB.