EIOPA issues supervisory opinions on DC risk management and pension charges

The European Insurance and Occupational Pensions Authority (EIOPA) has published two supervisory notes, with the first on improved supervision of pension costs and charges and the second on defined contribution (DC) risk management.

The two opinions are immediately applicable and are addressed to national competent authorities as defined in Article 4(2) of the EIOPA Regulation. Both opinions were subject to public consultation between 22 April and 22 July 2021.
With regards to the opinion on costs and charges, EIOPA noted that such fees can have a substantial cumulative impact: a 1 per cent increase in costs can have a 20 per cent impact on the amount of pension received.

Therefore, it said in order to protect members and beneficiaries, a transparent and comprehensive view of all costs and charges is essential for IORPs, social partners and supervisors. To address this, the opinion sets out expectations on the supervisory reporting of costs and charges of IORPs.

“It provides a classification of costs to be reported to national supervisors and introduces practical guidance for supervisors and IORPs - complete with reporting templates - on how to collect data. It lays out principles for the compilation of cost information and stipulates that not only direct but also indirect costs incurred by asset managers and investment funds should be reported,” EIOPA stated.

“The opinion also gives guidance on the supervisory use of cost data. National supervisors are expected to assess the cost efficiency of IORPs, the affordability for sponsors and the value for money offered to members and beneficiaries. The outcomes of the comparative analysis should be considered within the supervisory review process, including in the dialogues with the IORPs’ management boards.”

In addition, on the opinion on the supervision of risk assessment by IORPs providing DC schemes, EIOPA said that the supervisory approach to DC products needs to ensure that risks borne by DC IORPs are appropriately monitored and managed.

“The opinion fosters consistent supervisory practices by providing guidance on two aspects of risk management by DC IORPs. Firstly, the opinion calls for greater use of quantitative elements when managing operational risks, supplementing EIOPA’s existing opinion.

“Secondly, it expects DC IORPs to conduct long-term risk assessments by using projections of members’ future retirement income, comparing the results with the established risk tolerance of the members and beneficiaries, and as appropriate considering the IORP’s investment strategies,” EIOPA said.

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