Guidelines for the Supervisory Assessment of Pension Funds

The International Organisation of Pensions Supervisors (IOPS) approved the Guidelines at the 2008 Annual General Meeting. The Guidelines are developed to provide pension supervisors with general supervisory approaches for the conduct of the supervisory process. It should be noted that the focus of these guidelines is mainly prudential supervision.

Introduction

The objectives of pension supervision include protecting the interests of pension fund members and beneficiaries, safeguarding the stability of the pension industry and contributing to the stability of the financial system as a whole. To achieve these objectives, supervisory authorities should establish supervision methods which include the ability to adequately assess pension funds, both via regular monitoring and analysis and via more in-depth investigations, which are often done on an ‘on-site’ basis.

Due to the crucial role of the private pension systems within the financial markets, and their increasing importance as a source of retirement income for individuals, the effective supervision of pension funds is becoming ever more important. Supervision is playing an increasing role due to the enhanced complexity of pension systems, pressures on supervisory costs and efficiency and a trend towards a risk-based supervisory approach.
Regular assessment via monitoring and analysis is an important way to verify or capture reliable data and information in order to assess a pension fund’s financial position and its ability to pay promised retirement income to current and future beneficiaries. Monitoring and analysis is also of great assistance in building a risk profile for pension funds, allowing supervisors to deal with pension funds’ problems and to detect issues/ trends before they become entrenched, and may help to promote risk management within pension funds themselves. In addition, exposing funds to scrutiny via reporting requirements can have a deterrent effect in itself.
The in-depth evaluation of pension funds, whether by the supervisory authority or its formal representatives, is equally an important part of the supervisory process and is closely related to on-going monitoring, providing information that supplements the analysis of the financial and statistical information provided to the supervisory authority by pension funds. Such in-depth investigations may take place ‘on-site’ – i.e. at the pension fund’s own premises. On-site inspection allows supervisory authorities to form more qualitative judgements regarding the operations of the pension fund. For example, are systems which look adequate on paper working in practice? Does the management display capability? Is the organisation of the fund efficient (allowing for files and data to be accessed quickly etc.)?

Scope and Coverage

The purpose of these guidelines is to provide pension supervisors with general supervisory approaches for the conduct of the supervisory process. It should be noted that the focus of these guidelines is mainly prudential supervision. Some reference to conduct of business practices are made, but the IOPS may consider developing more detailed guidelines on this area in future (especially for contract type Defined Contribution pension funds). The guidelines are intended to cover all types of private pension arrangements, and although the term ‘pension fund’ is used in the document, some of the guidelines may also apply to the pension plan under which the fund itself is structured . Implementation of these guidelines will vary from country to country depending on the nature of the pension system and supervisory structure.
The guidelines are drawn from the IOPS ‘Principles for Private Pension Supervision’, the OECD’s ‘Core Principles of Occupational Pension Regulation’ (in particular Core Principle 6 on Supervision) and other OECD pension related guidelines, the IAIS Core Principle 12 ‘Reporting to supervisors and off-site monitoring’ and Core Principle 13 ‘On-site Inspection’, as well as other IOPS projects (including the work on risk-based supervision and the use of information technology). The document is structured as follows: 

• Preamble - outlining supervisory objectives
• Supervisory Process – divided into three parts:
  • Monitoring: whereby checks of a routine nature undertaken are outlined
  • Analysis: outlining how to recognize potential problems
  • In-depth Investigations: undertaken for selected entities are summarized
• Organisation: highlighting factors for ensuring an efficient and effective supervisory process

See the Guidelines.