OECD Subcommittee
Reporting in Vancouver, October 2015, to
Pensions and Employee Benefits Committee,
Insurance Regulation Committee, and
Resource and Environment Working Group
Purpose
To co-ordinate joint IAA and OECD activities
Actual substance should come from the respective committees
The Subcommittee, or actually its pension oriented members, will also
discuss IOPS (International Organisation of Pension Supervisors) issues
in accordance with the MoU between the IAA and the IOPS
Role of the Subcommittee
The IAA/OECD Memorandum of Understanding (MoU) will serve as a
framework for the subcommittee in carrying out its role.
• Review the MOU on a regular basis, suggest changes when appropriate
and discuss renewal at the end of the specified term;
• Evaluate OECD initiatives from an actuarial perspective;
• Determine whether the IAA can provide actuarial input and assign to
relevant IAA delegate;
• Ensure that the IAA is represented at relevant OECD meetings and seek
OECD participation in IAA events, where relevant;
• Exchange information on respective activities, subject to the Parties’
respective rules on the classification of information;
• Establish informal joint discussion groups or task forces, as required;
and
• Help organize joint events and work on joint projects, where
appropriate.
Decision making and practicalities
Decision-making authority
• The Subcommittee operates within the IAA Statutes and Internal Regulations and
works under the joint direction of the Insurance Regulation Committee (IRC) and the
Pensions and Employee Committee (PEBC).
Operational Matters
Meetings
• The subcommittee will meet primarily through teleconferences, although, if required
in-person meetings could be arranged.
Reporting on Committee Activities:
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The subcommittee will report to the IRC and the PEBC. Written reports of each
meeting or activity with the OECD will be submitted to the Supranational Relations
Manager at the IAA Secretariat.
IAA Liaison:
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The subcommittee liaises with other IAA committees or subcommittees as needed to
carry out its role and activities.
External Liaison:
•
The subcommittee liaises with relevant external stakeholders as required to carry out
its role and activities. These liaisons are subject to any requirements and processes of
the IAA Statutes and Internal Regulations.
Members
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Esko Kivisaari (Chair of OECD Subcommittee)
Tom Terry (Chair of Pensions and Employee Benefits Committee)
Dave Sandberg (Chair of Insurance Regulation Committee)
Régis De Laroullière
Thierry Poincelin
Ana Ramos
Joe Nichols
Yas Fujii
Philip Shier
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Health Committee liaison: Christelle Dieudonné
Social Security Committee liaison: Barbara d’Ambrogi-Ola
Population Issues Working Group liaison: to be nominated
Resource and Environment Working Group: to be nominated, maybe
Stephen Lowe
Activities
• Preparations for and participation in the OECD Paris June 2015
meetings:
– Working Party of Private Pensions WPPP (and IOPS Technical
Committee)
– Insurance and Private Pensions Committee IPPC
• Renewal of the MoU between the IAA and the OECD
• Finalisation of our joint paper with the IOPS
• Preparation of IAA comments to ”Consultation on the OECD Draft
Recommendation of The Council on The Core Principles of Private
Pension Supervision”
• Preparations for OECD meetings in December 2015
WPPP Paris, June 2015
• Core Principles of Private Pension Regulation was to the surprise of
many discussed in the closed session. Reviewing the document
ourselves, we note that many of the comments submitted by the
IAA two years ago on the funding principles section are now
reflected in the current version. (NOW UNDER CONSULTATION –
MORE LATER ON ON THIS)
• “Description of the tax treatment of funded private pension plans in
OECD and EU countries”, interesting but maybe less actuarial
• “Risk management of annuity products”. One of the merits of the
document was that it contained nice classification of annuity
products into three categories. Risk management was discussed
very much from the matching point of view
• draft G20 report on regulation of insurance company and pension
fund investment
WPPP Paris, June 2015, continued
• roundtable on conflicts of interest of retirement financial advisors
• financial education and retirement planning
• paper “Low interest rate environment: can pension funds and
insurance companies keep their promises”
• “Role of actuarial review and calculations in pension supervision”
done together with the IAA
• IOPS also has a project on “Target retirement income”. This could be
an area where the IAA could play a stronger role
• On projects in progress there is a fairly interesting issue of larger
pension funds. There is no acute need to discuss the possible
systemic risks of pension funds but IOPS is preparing itself to this
discussion if there will be a need in the future
IPPC Paris, June 2015
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Roundtable on the evolving insurer governance practices
– Including presentation by Dave Sandberg
Risk management of annuity products
Disaster risk financing and insurance
– Climate change and insurance
– Financial management of flood risk
– Review of implementation of the OECD Recommendation on Good
Practices for Mitigating and Financing Catastrophic Risks (2010)
Institutional investors and long-term financing
– Draft G20 report on regulation of insurance company and pension
fund investment
– Draft taxonomy of instruments and incentives
Review of OECD Guidelines on Insurer Governance (report on
implementation)
Future work: consumer protection, market conduct
Possible new OECD cooperation?
• Collaboration could be possible around the virtues of pooling?
Nothing concrete was agreed on the issue but this might be one of
future projects.
Renewal of the MoU
Joint IOPS-IAA paper on the Role of Actuarial
Review and Calculations in Pension Supervision
Contributors from the IAA
Esko Kivisaari
Joe Nichols
Ana Ramos
Philip Shier
(Marius du Toit – probably more through the IOPS)
Reviewers from the IAA
Barbara d’Ambrogi-Ola
Jason Malone
Don Segal
Paper now in the stage of final editing before publication
Joint IOPS/IAA paper
IOPS Secretariat
IOPS/WPPP Meetings
June 23, 2015
Paris, France
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Background and relevance
Methodology and scope
Main findings and observations
Implications for supervisors and conclusions
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Importance of the actuarial work
◦ DB/hybrid: liability, solvency, funding
◦ DC: Not seen as important because risk resides with
participant; No liability of sponsor
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Declining number of DB schemes
◦ What are the current activities of the actuarial
professional?
◦ Does supervisory expectations diverge from the
practise of actuarial professionals?
◦ What are supervisory concerns regarding the work
of actuarial professionals?
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Survey tool: Questionnaire [two groups]
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Framework
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Areas included in survey:
◦ IAA respondents
◦ IOPS respondents
◦ IOPS Principles of Private Pension Supervision, 2006
◦ OECD Recommendations on Core Principles of Occupational
Pension Regulation, 2009
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Interaction between supervisor and actuarial professionals
Importance of reviews in pension plans/funds
Risk management
Stakeholders
Is a qualified actuary required?
Professional responsibility
1.
2.
3.
4.
5.
6.
7.
Establishing financial position
Directing supervisory action
Legislative and prudential requirements
Who is doing the reviews?
More important in DB, hybrid having more
DB elements
Useful in DC (having guarantees or paying
annuities)
Risk management
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Challenges supervisors experienced:
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Quality of assumptions
Use of technical language/professional jargon
Bases/information
Statutory requirements
Independence
Time-sensitivity
Professional responsibility
Redress
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With the move away from DBs and concern about
increasing individual risks, reform considerations may
include focus on the Target Retirement Income concept
which may see the increased need for actuarial
professionals in DC schemes
As a measure of due diligence, supervisors must exercise
care and be particularly keen when relying on reviews
especially in cases where the local professional association
is not strong
Supervisor with limited oversight over the actuarial
professional must take an active role in reporting issues to
the
professional
associations
to
deter
negligent
behaviour/unprofessional conduct
◦ Even where supervisors may require removal of the professional from
a post, they should go a step further to advise local professional
association of professional misconduct
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Supervisors may engage the professionals/associations in dialogue, ex. to inform of
changes in legislation, standards, supervisory expectations etc.
Supervisors may place the onus on actuarial professionals to fully explain the results
generated (where no empowerment exists, this may be done through direct
dialogue/meetings/local associations etc.) AND/OR
Guide, encourage and train trustees so that they take an active role in having the
actuarial professionals explain the results of their reviews as well as the actions that
need to be taken (results should be fully explained/done in a clear and coherent
fashion)
Actuarial associations take problems identified into account in rules of professional
ethics. Supervisors have to ensure that these rules are actually applied and therefore
need to have clear regulations on ex. disclosure of bases, assumptions, transparency,
avoidance of conflict etc.
Continued professional development of the actuarial professional is necessary
Ideas for future IOPS projects?
• They asked for our proposals for future joint projects. We took the
question positively and promised to return with our proposals.
• A possible idea, discussed by Esko and Tom following this
discussion, would be related to target benefit plans and the role of
the actuarial profession therein.
Consultation on the OECD Draft
Recommendation of The Council on The Core
Principles of Private Pension Supervision
In order to encourage more efficient regulation and management of
private pension systems, the Working Party on Private Pensions
(WPPP), a subsidiary body of the Insurance and Private Pensions
Committee (IPPC), developed the Core Principles of Occupational
Pension Regulation in 2001 which were embodied in 2004 in the
Recommendation of the Council on Core Principles of Occupational
Pension Regulation (the 2004 Recommendation). The
Recommendation, which also included supporting Implementing
Guidelines to the Core Principles, aimed to provide governments,
regulators and supervisors worldwide with a relevant common
benchmark and high-level guidance on the design and operations of
occupational pension systems. The Recommendation also helped
countries identify strengths and weaknesses in their private pension
systems, to identify reform priorities and to ultimately improve the
performance of these systems in order to deliver adequate and secure
incomes in retirement to pensioners.
Purpose of the renewal
The proposed draft Recommendation, contained in this document, aim to
modernise the Core Principles in order to increase their relevance given
current practices and developments. The draft Recommendation is
currently being developed by the WPPP. A key issue is to facilitate the
application of the Core Principles to different types of private pension
plans, especially personal and defined contribution plans, which are
growing in importance in pension provision in many OECD Members and
non-Members. The draft Recommendation aims also to provide operative
guidance on how to implement private pension provision effectively and
efficiently while addressing the lessons learnt from the turmoil financial
markets experienced over the past few years.
An additional aim of the revisions is to improve consistency with other
OECD legal instruments and policy guidance. The suggested changes to
the Core Principles harmonise them with the G20/OECD High-Level
Principles of Long-Term Investment Financing by Institutional Investors,
the Recommendation of the Council on Good Practices for Financial
Education Relating to Private Pensions and the G20/OECD High-Level
Principles for Financial Consumer Protection.
General and specific principles
The draft Recommendation contains general principles that are
applicable to all funded private pension plans, as well as specific
principles for occupational and personal pensions as defined in the
glossary.1 The Core Principles are separated into three main sections.
Six Core Principles in Part I form the general principles applicable to all
types of private pension plans. Part II encompasses two Core Principles
specific to occupational pension plans. Part III specifies two Core
Principles relating to personal private pension plans
Core Principles
Core Principle 1: Conditions for effective regulation
Core Principle 2: Establishment of pension plans, pension funds, and
pension entities
Core Principle 3: Governance
Core Principle 4: Investment and risk management
Core Principle 5: Plan design, pension benefits, disclosure, and redress
Core Principle 6: Supervision
Occupational Pension Plans:
Core Principle 7: Occupational pension plan liabilities, funding rules,
winding up, and insurance
Core Principle 8: Access, vesting, and portability of occupational pension
plans
Personal Pension Plans
Core Principle 9: Funding of personal pension plans, wind-up and
insolvency
Core Principle 10: Equal treatment, business conduct, competition and
portability of personal pension plans
Definitions – entity/fund/plan?
Pension entity: the independent legal entity with legal capacity that
has ultimate legal responsibility for the pension fund. It can take the
form of an independent legal entity acting as a pension trustee (such
as a corporate trustee in the case of pension funds established as
trusts), or a pension fund with legal capacity (such as foundations and
mutual associations) or a pension fund management company. An
insurance company or other financial institution may be considered to
be a pension entity insofar as it is legally responsible for a pension fund
and otherwise fits the definition of the first phrase of this definition.
The term “pension entity” does not refer to plan participants, the plan
itself, or the employer (unless the employer is also the pension fund
management company or has directly contracted a management
company to handle the corporate pension).
Definitions – entity/fund/plan?
Pension fund: the pool of assets forming an independent legal entity
that is bought with the contributions to a pension plan for the exclusive
purpose of financing pension plan benefits. The plan/fund members
have a legal or beneficial right or some other contractual claim against
the assets of the pension fund. Pension funds take the form of either a
trust, an independent entity with legal capacity (such as a foundation
or mutual association) or a legally separated fund without legal
capacity managed by a dedicated provider (pension fund management
company) or other financial institution on behalf of the plan/fund
members. The term “pension fund” does not refer to individual pension
contracts.
Definitions – entity/fund/plan?
Pension plan: a pension (or retirement income) plan (arrangement or
scheme) is a legally binding contract having an explicit retirement
objective or – in order to satisfy tax related conditions or contract
provisions – the benefits cannot be paid at all or without a significant
penalty unless the beneficiary is older than a legally defined retirement
age. This contract may be part of a broader employment contract, it
may be set forth in the plan rules or documents, or it may be required
by law. The elements of the pension plan may be mandated by law or
statute or set forth as pre-requisites for special tax treatment, as is the
case for many tax qualified savings or retirement programmes designed
to provide the plan’s members and beneficiaries with an income after
retirement. In addition to having an explicit retirement objective,
pension plans may offer additional benefits, such as disability, sickness,
and survivors’ benefits.
Next meetings
• Both the WPPP and the IPPC have next meetings in Paris between 7
and 11 December
• a special session on climate change and the insurance sector on 3
December, with high level speakers from the government, industry
and academic as it will be held during COP21. SOA will be sending a
speaker given a paper they have written on the topic of climate
change
• Preparations, when there is agenda material, coordinated via 1-2
teleconferences
• Problem with the OECD: agenda material comes very late