IORPs should not be treated as non-banking financial institutions (NBFIs), given their social role and how they are regulated, PensionsEurope has said.

In its response to the European Commission's consultation on assessing the adequacy of macroprudential policies for NBFIs, PensionsEurope explained that IORPs have limited connection with other financial and their ability to trigger systemic risks is very small.

It also noted that pension funds are long-term investors with very predictable liabilities, which provide stability, rather than instability, to the financial system.

In addition to this, it said that the risk management and governance of pension funds are adequate to deal with any potential liquidity risk as well.

Whilst PensionsEurope acknowledged that, in theory, the failure of an IORP or other type of pension fund could have some negative implications for domestic demand and cause old age poverty for some affected persons, it stressed that, in reality, the insolvency of pension funds is an improbable event.

PensionsEurope also stressed that regular liquidity risk assessments relating to derivative portfolios are alread part of the treasury function and risk-management processes for IORPs.

Indeed, PensionsEurope noted that, in almost all countries, pension funds are required to be fully funded with capital requirements, and EIOPA stress tests show that solvency ratios are resilient even under financial stress.

Pension funds are also banned from leverage and, in some countries, are required by legislation to reduce benefits in case of underfunding.

Given this, it argued that IORPs should not be treated as NBFIs given their social role and how they are regulated, emphasising that insolvency of pension funds is an improbable event.

The comments received in response to the EC's consultation are set to feed into EC's thinking for potential new initiatives for the new 2024-2029 mandate.

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