IOPS Working Papers on Effective Pension Supervision

 

As the proportion of retirement income provided by private pensions becomes increasingly important, the quality and effectiveness of their supervision becomes more and more crucial. The IOPS Working Paper Series, launched in August 2007, highlights a range of challenges to be met in the development of national pension supervisory systems.The papers review the nature and effectiveness of new and established pensions supervisory systems, providing examples, experiences and lessons learnt for the benefit of IOPS members and the broader pensions community.  

Call for papers

This working paper series aims to fill a gap in pension research by focusing specifically on supervisory issues. These are of increasing importance to all IOPS member countries and the broader pensions community due to the rise of private pensions and the move to a risk-based supervisory environment.

The IOPS welcomes submissions for the working paper series. Authors who have papers covering relevant issues and who are interested in submitting them for inclusion in the series should contact Sally Day-Hanotiaux (sally.day-hanotiaux@oecd.org).

 

No 26 12/2016

Supervision of Lost Accounts and Unclaimed Pension Benefits
This paper discusses supervisory practices for, and implications of, lost accounts and unclaimed pension benefits (including unaccounted pension assets). Supervision and proper regulation of the issue of lost accounts and unclaimed pension benefits are important because a loss of contact may result in a forfeiture of substantial retirement benefits for individual members. Proper management and minimising the amount of lost accounts and unclaimed pension benefits are fundamental if supervisors are to build trust in the pension system.

No 25 12/2015

The Concept of Target Retirement Income: Supervisory Challenges
This paper discusses supervisory challenges in relation to the concept of the target retirement income (TRI). The TRI framework attempts to shift the short-term focus of pension providers and investment managers towards the long-term income perspective of retirement savers. It seeks to address the needs of pension fund members by providing them with understandable and substantial information about their expected income needs in retirement and the risks to which they are exposed.

No 24 09/2015

Background Paper: The role of actuarial calculations and reviews in pension supervision
This Background Paper examines in details the role of actuarial calculations and reviews for pension supervision from the perspective of surveyed actuarial professionals (IAA) and pension supervisors (IOPS). It provides a comprehensive analysis of responses received from both institutions in the areas of: requirements placed on actuarial professionals, expectations of supervisors towards actuarial calculations and reviews, responsibilities and liabilities of actuarial professionals, fit and proper requirements by pension supervisors and the importance of actuarial calculations and reviews in pension schemes and their risk management. The synthesis of this paper is published as IOPS Working Paper No. 23.
The main finding of the paper is that actuarial calculations and reviews have a crucial role in the oversight function, especially when considering the supervision of defined benefit (DB) and hybrid pension funds. Their primary function in the pension supervision process of such funds is to ensure that the entities are complying with legal provisions on how the fund is operating, as well as in complying with requirements for funding.
The paper identifies several potential challenges that might be faced by supervisors with regard to the conduct or role of actuarial professionals. These relate to: quality of actuarial assumptions, use of technical language, inaccurate information, responsiveness by actuarial professionals, their independence, adequacy of resources, availability of timely information and observance of statutory requirements or legal changes.

No 23 09/2015

Synthesis Paper: The role of actuarial calculations and reviews in pension supervision
This synthesis paper is an abridged version of the background paper published as IOPS Working Paper No. 24. It briefly describes calculations and reviews, the role of the actuary as well as other different professionals undertaking these calculations. It then discusses the role that calculations and reviews can play in pension supervision, and concludes by outlining the challenges (and potential solutions) for supervisors using actuarial calculations.
The main finding of the paper is that actuarial calculations and reviews have a crucial role in the oversight function, especially when considering the supervision of DB and hybrid pension funds. Their primary function, in the pension supervision process of such funds, is to ensure that the entities are complying with the legal provisions on how the fund is operating as well as complying with the requirements for funding.
The paper identifies several potential challenges that might be faced by supervisors with regard to the conduct or role of actuarial professionals. These relate to: quality of actuarial assumptions, use of technical language, inaccurate information or responsiveness of professionals involved in actuarial calculations and reviews, their independence, adequacy of resources, availability of timely information and observance of statutory requirements or legal changes.

No 22 01/2015

Role of Pension Supervisory Authorities in Automatic Enrolment
This paper reviews the experiences of supervisory authorities in jurisdictions where automatic enrolment programmes were implemented at the national level: Italy, New Zealand and the United Kingdom, and in other jurisdictions where automatic enrolment applied to specific subsets of workers or plans: in Chile for self-employed workers for a limited period of time and the United States for certain occupational pension plans.
The paper identifies the principle areas of involvement of pension supervisory authorities and the main directions and challenges for the supervisory oversight of automatic enrolment programmes.
The paper finds that pension supervisory authorities play an important role in automatic enrolment. Pension supervisory authorities are involved in designing automatic enrolment, including their default arrangements. They also contribute to developing and strengthening the legal framework to better protect the interests of the growing number of participants, and are involved in the setting of administrative processes for automatic enrolment and related procedures. Their central role consists of overseeing and enforcing compliance with the automatic enrolment legal provisions. The pension supervisory authorities also participate in the development of communication campaigns to promote understanding about automatic enrolment and foster the compliance.

No 21 01/2015 Supervising Distribution of Annuities and other forms of Pension Pay-out
This paper provides an overview of the main types of pension products on offer in different IOPS Member jurisdictions and way they are distributed. It presents how IOPS Members supervise the entities providing and advising on these products and identifies the main challenges pension supervisors face with respect to supervising these products and proposes some possible responses to these challenges.
The paper provides detailed case studies of the automated system of pension bids (SCOMP, Sistema de Consultas y Ofertas de Montos de Pensión) operating in Chile and the Open Market Option (OMO) system used in the UK.
No 20 04/2014 Update on IOPS Work on Fees and Charges
This paper identifies the challenge in making comparisons of fees across different pension systems and updates the analyses of charge ratios for the countries that originally participated in the 2008 exercise (IOPS WP No. 6), while looking at the historic trends of both fees charged by pension funds to members and the operating expenses of pension funds. Previous work tried to explain fees variation across different jurisdictions by taking into consideration factors such as GDP, ratio of total pension assets to GDP, the mandatory or voluntary nature of the retirement system, etc. However, the results of such research have not been conclusive, in part because of the data challenges of cross-country comparisons.
This paper aims to explain the evolution of fees within countries, comparing the level in 2012-13 to that of six years ago by taking into consideration the reforms that jurisdictions have enacted since 2008, the year of the previous research.
No 19 03/2014 Stress Testing and Scenario Analysis of Pension Plans
Stress testing is a useful and increasingly popular method of analysing the resilience of financial systems to adverse events. It has only recently been introduced to the pensions sector in some countries as well. This paper presents the results from a survey of stress testing practices among IOPS member countries and provides some reflections on whether and how stress testing could be applied in DC plans. In addition to the technical aspects of stress testing, the paper dwells on the governance requirements for stress testing, drawing some conclusions and lessons for pension supervisors as they introduce and develop their own techniques.
No 18  12/2012 Supervising Default Investment Funds
This paper aims to address how to ensure that default funds are well designed, in the sense of suitable for the members who are placed in them, and how to identify the factors that need to be considered in designing a default investment option. The paper does not intend to investigate the design of a model default portfolio with quantitative settings.
No 17  12/2012 Supervision of Pension Intermediaries
The goal of the paper is first to establish how private pensions are distributed in different IOPS member countries, and how pension intermediaries involved in the advice and sales process are regulated and supervised. The paper identifies common approaches and challenges encountered by IOPS members in their jurisdictions, and looks at different regulatory mechanisms and supervisory tools which have been used to overcome these issues.
No 16  07/2012 Structure of Pension Supervisory Authorities and their Approaches to Risk-Based Supervision
This paper examines whether the Global Financial Crisis (GFC) has had an impact on pension supervision and it looks at the effect of the GFC on risk-based supervision (RBS), before going on to examine the potential impact on the external and internal structure of pension supervisory authorities.
No 15  12/2011 Comparative Information Provided by Pension Supervisory Authorities
The provision of information on pensions is of increasing importance as pensions savings are growing and becoming an important part of the financial system, and as defined contribution pension plans, which usually involve competitive pension products and providers, are becoming more dominant. This paper examines the role pension supervisory authorities can play in providing information. How comparative information on costs, investment performance and comparative service data is presented by IOPS member authorities is outlined and some lessons learnt suggested.
No 14  03/2011 Efficient Information Collection
The purpose of this paper is to provide guidance on the factors pensions supervisors should consider when deciding what information they need to obtain, and how such information can be collected and handled efficiently. Particular focus is given to information required for a risk-based approach to supervision. Suggestions and examples are provided on how supervisors may identify information needs and on the practicalities of obtaining (and sharing) information from different sources.
No 13  09/2011 Pension Fund Use of Alternative Investments and Derivatives: Regulation, Industry Practice and Implementation Issues
This paper reviews the regulation in place which aims to manage the potential risk exposures that alternative investments and derivatives present, canvasses the implementation issues, highlights the potential risks and reviews current risk management practices observed by pension funds in managing these risk exposures. The paper finally concludes with observations which can be translated into lessons for consideration by supervisory authorities when developing future pension fund regulation and supervision practices of alternative investments and the use of derivatives, whilst also taking into account the IOPS Good Practices.
No 12  10/2011

Managing and Supervising Risks in Defined Contribution Pension Systems
Defined contribution (DC) plans are playing a larger role in pension systems around the world. Pension supervisory authorities are consequently asking if their oversight approaches need to adapt to this development – given that the risks within DC systems are born by the plan members themselves?
This paper highlights the key challenges for DC supervisors, outlining the different mechanisms which can be used to control risks within DC systems, and how the use of these mechanisms informs the supervisory approach. Case studies of IOPS members overseeing DC systems are also provided.

Related materials

Introduction to IOPS Working Paper and Supervising DC Funds in Australia - Ross Jones, APRA, Australia
Supervising DC Funds in Chile - Solange Berstein, SP, Chile

No 11  11/2009

Pension Funds' Risk-management Framework
Drawing on the experience of the pensions and other financial sectors, this paper examines what sort of risk-management framework pension funds should have in place. Such frameworks are broken down into four main categories: management oversight and culture; strategy and risk assessment; control systems; and information and reporting. Ways in which supervisory authorities can check that such systems are operating are also considered, with a check list provided to assist pension supervisory authorities with their oversight of this important area.

Related materials

'Rethinking Risk Management in Financial Services', World Economic Forum report, April 2010

No 10  11/2009 Governance and Performance Measurement of Pension Supervisory Authorities
The governance, oversight and performance measurement of financial supervisory authorities are increasingly recognized as   important topics – not least due to the recent financial crisis and perceived problems in (and lack of) the regulatory oversight of financial institutions. Yet this is a relatively under-researched area, particularly in relation to pension supervision. This paper therefore attempts to combine theoretical material from a range of financial sectors along with practical examples from the pensions sector to establish what the good governance of pension supervisory authorities entails, how it is applied in practice, and how it can be monitored and measured.
No 9  04/2009 Private Pensions and Policy Responses to the Financial and Economic Crisis
This paper discusses responses to current financial and economic crisis by regulators, supervisors and policy makers in the area of private pensions. These responses are examined in the light of international guidelines, best practices and recommendations to improve the design of private pensions.
No 8  08/2008 Supervisory Oversight of Pension Fund Governance
This working paper mainly analyses the responses of IOPS members to a survey on supervisory oversight of pension fund governance. The survey and responses cover the current focus, issues and problems as well as future developments. A few case studies are also included in the paper to illustrate the different types of issues that pension fund systems may face and the means that may be adopted by the relevant supervisory authorities to resolve these issues.
N° 7  05/2008 Transparency and competition in the choice of pension products: The Chilean and UK experience
This paper discusses two countries building centralised information and quotation systems for annuity products to help individuals select the right retirement product at the right price. The SCOMP system in Chile is examined and developments around the Open Market Option (OMO) in the UK are discussed, with lessons drawn for other pension supervisory authorities contemplating introducing such centralised systems.
N° 6  06/2008

Comparison of Costs and Fees in Countries with Private Defined Contribution Pension Systems
The fees and charges imposed upon pension funds are of great interest and importance to pension supervisory authorities as they have a significant impact on the amount of retirement income delivered to individuals, particular in the case of defined contribution (DC) pension schemes. Yet administrative fees are charged for services in different ways, with the diversity of charges and the specific details involved in each case making it impossible to directly compare administrative charges nationally and internationally. This paper therefore attempts to model such charges on a unified basis to allow for a standardized international comparison, known as the charge ratio.

Please note that this paper has been superseded by IOPS Working Paper 20, ‘Update of IOPS Work on Fees and Charges’, issued in April 2014.

N° 5  09/2008 Information for Members of DC Pension Plans: Conceptual Framework and International Trends
In recent years, the shift towards defined contribution (DC) pension plans has been a key trend in the field of private pension provision. In this context, where a wide range of options may potentially be available to individual plan members, it is crucial to ensure that they have the information necessary to make appropriate choices. Based on the findings of an IOPS survey, this paper offers a conceptual framework for considering information provision within the context of the pension system and related factors (such as the range of choices offered to individuals, the use of default options, the level of financial literacy, etc).
N° 4  08/2007

Experience and Challenges in Introducing Risk-based Supervision for Pension Funds (please note the version posted contains updated figures for the German pension system)
Just as other financial sectors have moved towards a “risk-based” approach to supervision, pension supervisory authorities are also looking to follow the handful of pioneer authorities which have adopted these methods, namely the Netherlands, Mexico, Denmark and Australia. Examining some countries that have learnt from these pioneers, this paper focuses on the experiences and challenges they have faced in adopting risk-based pension supervision.

Related materials

Presentation: Introduction to IOPS Toolkit - Taliya Cikoja, IOPS Secretariat

Presentation: Preparing the Supervisory Authority and Pension Industry for RBS - Charles Machira, RBA, Kenya

N° 3  08/2007 Utilisation of Information Technologies in Off-site Supervision of Private Pension Systems
The increasing intricacies of private pension systems raise the importance of supervising these systems effectively. How can IT be used to do this? How can IT be integrated into an existing system? With a case study on Turkey, this paper lays out a field for discussion of this question, offering some initial suggestions for international good practise.
N° 2  08/2007 Supervisory Education, Outreach and Communication, including Training of Trustees
Some pension supervisors have responded to the growing complexity and importance of private pension provision by delivering educations programs for pension fund managers, fiduciaries and members. This paper draws together information on how and why these programs are carried out, analysising their impact and effectiveness in examples from Kenya, Ireland, South Africa and the UK.
N° 1  08/2007 A Review of the Pros and Cons of Integrating Pension Supervision with that of Other Financial Activities and Services
With the rise of large conglomerates offering a range of financial services, is a single agency the most appropriate means of sypervising financial intermediaries (banks, insurance companies, securities firms)? Should Pension Funds be supervised by such integrated authorities? Examining a range of arguments, this paper concludes that the answer depends on the context and environment of the pension system.

 

 

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