OECD Subcommittee

Reporting in Vancouver, October 2015, toPensions and Employee Benefits Committee,

Insurance Regulation Committee, andResource 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 MattersMeetings•The subcommittee will meet primarily through teleconferences, although, if required in-person meetings could be arranged.Reporting on Committee Activities:•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:•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

• 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

• 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

• 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 SupervisionContributors from the IAA

Esko KivisaariJoe NicholsAna RamosPhilip Shier(Marius du Toit – probably more through the IOPS)

Reviewers from the IAABarbara d’Ambrogi-OlaJason MaloneDon Segal

Paper now in the stage of final editing before publication

Joint IOPS/IAA paperIOPS Secretariat

IOPS/WPPP MeetingsJune 23, 2015Paris, France

Background and relevance Methodology and scope Main findings and observations Implications for supervisors and conclusions

Importance of the actuarial work ◦ DB/hybrid: liability, solvency, funding◦ DC: Not seen as important because risk resides

with participant; No liability of sponsor 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?

Survey tool: Questionnaire [two groups]◦ IAA respondents ◦ IOPS respondents

Framework ◦ IOPS Principles of Private Pension Supervision, 2006 ◦ OECD Recommendations on Core Principles of Occupational

Pension Regulation, 2009

Areas included in survey: ◦ Interaction between supervisor and actuarial professionals ◦ Importance of reviews in pension plans/funds◦ Risk management ◦ Stakeholders ◦ Is a qualified actuary required? ◦ Professional responsibility

1. Establishing financial position 2. Directing supervisory action3. Legislative and prudential requirements4. Who is doing the reviews?5. More important in DB, hybrid having more

DB elements6. Useful in DC (having guarantees or paying

annuities)7. Risk management

Challenges supervisors experienced:◦ Quality of assumptions◦ Use of technical language/professional jargon ◦ Bases/information◦ Statutory requirements◦ Independence◦ Time-sensitivity

Professional responsibility Redress

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

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 PlansCore 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