2006 PARIS

1. 2006 PARIS

2. The Funding Principles for Pension Funds Chairmen: Paul Thornton UK André Laboul Presenters: Juan Yermo Fraser Low UK Maarten Gelderman The Netherlands 1st June 2006 11:00 – 12:30

3. IOPSFraser Low IACA - 1 June 2006

4. An independent international body 50 member and observer organisations Organisations from 40 countries Developed out of the INPRS – with IOPS formally established in 2004 Focus on the setting of standards for occupational pension supervision Close relations with OECD Working Party on Private Pensions – which has conducted research & policy analysis since 1999 and continues work on pension regulatory issues What is IOPS?

5. Executive committee: John Ashcroft, UK - Chairman Australia, Netherlands, Germany, Jordan, China, Hungary, Italy, Kenya, Chile, Pakistan. Deals with all matters of principle and issues arising between meetings. Structure

6. Technical committee Aerdt Houben, Netherlands,- Chairman All members who wish participate Develops principles, standards & good practices on pension supervisory issues Regulatory issues related to pension supervision Structure

7. Serving as the standard-setting body on pension supervisory matters Promoting international co-operation on pension supervision Providing a worldwide forum for policy dialogue and exchange of information on pension supervision Participating in the work of relevant international bodies in the area of pensions, including joint research and activities to improve statistical collection and analysis. Aims

8. Risk-based supervision Joint with World Bank – first project designed to provide a comprehensive source of information on the motivations, practices and outcomes of risk-based methods used by private pension supervisors. World Bank case studies on Australia, Netherlands, Denmark, Chile, Mexico IOPS case studies on South Africa, Croatia, Kenya, UK, Germany. Key Projects

9. Approved by Governing Membership Consultation document published 15 December 2005 available for comment Open for consultation until 31 May 2006 Principles of Private Pension Supervision

10. Principle 1: Objective National Laws should assign clear and explicit objectives to pension supervisory authorities Principle 2: Independence Pension supervisory authorities should have operational independence Principle 3: Adequate Resources Pension supervisory authorities require adequate financial, human and other resources Principle 4: Adequate Powers Pension Supervisory authorities should be endowed with the necessary investigatory and enforcement power to fulfil functionsand achieve their objectives Principles of Private Pension Supervision

11. Principle 5: Risk Orientation Pension supervision should seek to mitigate the greatest potential risks to the pension system Principle 6: Proportionality + Consistency Pension supervisory authorities should ensure that investigatory and enforcement requirements are proportional to the risks being mitigated and that their actions are consistent Principle 7:Consultation + Cooperation Pension supervisory authorities should consult with the bodies they are overseeing and cooperate with other supervisory authorities Principle 8: Confidentiality Pension supervisory authorities should treat confidential information appropriately Principles of Private Pension Supervision

12. Principle 9: Transparency Pension supervisory authorities should conduct their operations in a transparent manner Principle 10: Governance The supervisory authority should adhere to its own governance code and should be accountable Principles of Private Pension Supervision

13. Membership – World Bank, Australia, Germany. Netherlands, Pakistan, UK. Core elements of a risk-based approach to pension supervision Strategic planning Best use of scarce resources Current Projects- Risk Based Supervision

14. Membership – Spain, Netherlands, UK Potential problems and possible solutions where supervision extends beyond the home state. Cross border issues world wide

15. Membership – Turkey Investigating and analysing the most effective IT methods for supervising off site private pension systems. Utilisation of Offshore IT

16. Membership – Kenya, Ireland, South Africa, UK and World Bank. Supervisory education, outreach & communication, including training of trustees

17. Membership – Mexico and Italy. Building a comprehensive database covering pension and supervisory systems in member countries – collaborating closely with the ISSA Database of supervisory structures

18. Membership – Australia and Germany working jointly with OECD. Setting minimum entry requirements for pension funds in countries where licensing prevails. Guidelines on compliance with the licensing of pension funds

19. First Annual General Meeting held December 2005: Bylaws amended Principles approved New Executive Committee elected 2005 Regional conference held in Bangkok: 12 Asian countries represented 100 global delegates in total Conference Schedule

20. Regional events continued with Santiago, Chile conference in March Well attended Concentrated on defined contribution schemes Used Chilean experience as a model. 2006 Conference

21. July 5th Geneva, Switzerland IOPS Committee Meetings November 5-8th Istanbul, Turkey OECD/ IOPS Pensions Global Forum + IOPS committee meetings + AGM 21-23 March 2007, Amsterdam, The Netherlands IOPS Committee meetings + DNB sponsored International Pensions Conference Future Meetings

22. Improving the profile of occupational pensions across the world IOPS website – www.iopsweb.org Source of material for governments and EU Commission, and CEIOPS. Influence

23. Partnership agreements OECD ISSA Associate Members and Observers IMF World Bank AIOS / CEIOPS IAA IAIS Cooperation with other organisations

24. Working agreement with the International Association of Insurance Supervisors Website enhancement. Future developments

25. Pension fund regulation in the Netherlands, background and implications Maarten Gelderman, DNB

26. The Dutch pension sector The Financial Assessment Framework Some implications for the actuarial profession Outline

27. The crisis that isn’t? Approximations only

28. Approximately 1000 funds Average coverage ratio: > 130% Average coverage ratio for shortfall funds: >125% Lessons Transparency improves understanding One million flies can be wrong… Current state

29. 97,5% Solvency Standard for Nominal Pension Obligations Risk sensitive buffers (full balance sheet approach) Standardised approach and/or internal modelling Mark to market (or model) Financial Assessment Framework

30. Nominal coverage and real expectations

31. Nominal coverage and real “certainty” (95%)

32. Risk sensitivity (some call this volatility!) Complexity Means of communication Risk perverse incentives (reduced, but not eliminated) Advantages and disadvantages

33. Be prepared to validate solvency and valuation models Excellent starting position, but: Better be approximately right than exactly wrong Familiarity with products is key Increase financial markets knowledge Some implications for the actuarial profession

34. Any questions?