Additional regulatory requirements for pension funds in Europe
ECB and EIOPA have prepared their new pension data reporting requirements with the aim to have better, comparable and relevant information in Europe.
The pension funds industry has welcomed the fact that the ECB, EIOPA, Eurostat and OECD are aligning their reporting standards. It has also welcomed the principle to leave flexibility to the National Competent Authorities in collecting data and providing it to the ECB and EIOPA. In 2018, the following publication took place :
- The regulation (EU) 2018/231 of ECB of 26 January 2018 on statistical reporting requirements for pensions funds (ECB/2018/2) (ECB Regulation)
- The decision of the Board of Supervisors of EIOPA dated 10 April 2018 on EIOPA’s regular information requests towards National Competent Authorities regarding provision of occupational pensions information (EIOPA Board Decision).
The ECB Regulation aims to improve the quality of data reported by pension funds, in order to fully understand cash flows and risks associated with pension obligations. EIOPA, on the other hand, wants to better monitor and assess market developments in the occupational pensions sector, with a particular focus on investor protection and financial stability.
These new requirements will lead to additional reporting requirements and information flows that pension funds will need to manage. Although the industry has welcomed these new requirements, it has also raised the alarm that they could generate extra costs for pension funds which will ultimately be paid by their members .The potential extra cost will strongly depend on the changes required by the National Competent Authorities in particular in the area of granularity of data and files format.
ECB regulation and EIOPA Board decision: a different scope of reporting population
ECB Regulation includes in its scope workplace pension funds (Pilar II pension funds) and private pension funds (Pilar III pension funds) while EIOPA reporting only includes Pilar II pensions funds (Institutions for occupational retirement provision (IORPs)) that are regulated under the “IORP II Directive”.
Reporting requirements under ECB Regulation
Pension funds resident in the Eurozone will have to provide to their relevant National Central Bank, either directly or via the relevant National Competent Authority:
- Quarterly reporting: end-of-quarter stock data on the assets of pension funds, including quarterly revaluation adjustments or financial transactions concerning assets. Non-money market funds’ shares/units shall be broken down by investment asset classes (bond funds, equity funds, mixed funds, real estate funds, hedge funds and other funds);
- Annual reporting: end-of-year stock data on:
- Liabilities of pension funds at minimum, including annual revaluation adjustments or financial transactions concerning liabilities.
- Number of members of pension schemes broken down into active members, deferred members and retired members.
National Central Banks will then, on the basis of this data, derive quarterly estimates for liabilities of pension funds.
There may be some derogations for “small pension funds”.
Requirements under EIOPA Board Decision
IORPs will report to their local National Competent Authority:
- Quarterly reporting: balance sheet information and list of assets;
- Annual reporting: balance sheet information, list of assets (mark-to market valued) with investment funds on a look-through approach (underlying asset categories/country of issue/ currency), investment income, changes in technical provisions, member data, contributions, benefits paid and transfers, expenses, cross-border activities
Compared with ECB reporting requirements, EIOPA Board decision introduces a higher degree of transparency from market participants. If investment funds exceed 10% of the total value of investments of the IORP, the look-through is mandatory and shall cover 90% of the value of shares/units of the investment funds. The remaining 10% (non-material residual values) shall be reported separately. On the contrary, units of undertakings for collective investment in transferable securities (UCITS) will not be subject to this look-through approach for a transitional period that still needs to be determined by EIOPA.
The National Competent Authorities can opt to either report aggregated information at Member State level, or information at individual IORP level, depending on the size of the national market and the amount of IORPs domiciled the relevant Member State. In each EU Member State, the National Competent Authorities will have to determine the correct reporting populations and potential exemptions, by 31 December 2018. Under the EIOPA Board Decision, the smallest pension funds in each Member State can be exempted.
In countries where the National Competent Authority has opted for individual reporting, only the following “biggest” local IORPs will have to comply with the reporting requirements:
- Those with a balance sheet of more than EUR 1 billion
- The five local biggest IORPs in terms of total balance sheet, unless the individual balance sheet is less than EUR 100 million.
NB: the reporting timelines above are subject to special arrangements between National Central Banks/National Competent Authorities and pension funds/IORPs and will be progressively brought forward until 2022.
Data reporting taxonomy
The ECB and EIOPA have developed integrated technical templates and means to report via a single submission the information required by both institutions.
On 5 November 2018, EIOPA has published the taxonomy applicable for reporting of information of IORPs, providing National Competent Authorities with the technical means for the submission of the relevant information to EIOPA. National Competent Authorities are encouraged to use this taxonomy also for the collection of information from pension funds, in order to ensure efficiency and clarity of the reported information.
It is important to note that the taxonomy can be reconciled with the Solvency II reporting requirements and is closely aligned with the ECB reporting requirements, which may reduce the burden resulting from these new rules.
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