The European Insurance and Occupational Pensions Authority (EIOPA) has launched its first stress test and a quantitative assessment on solvency for occupational pension funds.
The stress test will assess the resilience of Institutions for Occupational Retirement Provision (IORPs) and their pension schemes to a range of market scenarios.
The test will cover both defined benefit (DB) and defined contribution (DC) pension schemes. The regulator said its aim was to test the resilience of DB and hybrid pension schemes against adverse market scenarios and increase in life expectancy as well as to identify potential vulnerabilities of DC schemes.
It will be conducted in 17 European countries where the IORP sector exceeds 500m (£361m) in assets, covering at least 50% of their national market. The member states include the UK, Germany, Spain, the Netherlands, Malta, Luxemburg and Portugal.
EIOPA said the stress test would provide insight and raise awareness of risks and vulnerabilities for the occupational pensions sector.
The quantitative assessment follows a consultation paper on further work on solvency of IORPs EIOPA did last year. The regulator said the aim of the quantitative assessment was to gather data and assess the appropriateness of EIOPA's proposals in the consultation paper.
EIOPA believed the outcomes of the assessment would support EIOPA to further develop its advice to the European Commission on EU solvency rules for IORPs.
Gabriel Bernardino, EIOPA's chair, said: "Pension funds are already experiencing a challenging environment with low interest rates and rising life expectancy. A key vulnerability for the occupational pensions sector is a prolonged period of low interest rates combined with a fall in asset prices due to a re-appraisal of risk on financial markets. The stress test will retrieve valuable information on the sensitivity of IORPs, sponsoring undertakings and members and beneficiaries to such a scenario."
The stress test and the quantitative assessment will be conducted in parallel "to minimise the burden of IORPs". Both exercises will run until 10 August.