The Pensions Regulator (TPR) has endorsed the conclusion of the pension stress test carried out by the European Insurance and Occupational Pensions Authority (EIOPA).

The first EU-wide stress test considered the impact of market and longevity shocks in pension schemes.

It found that flexibilities within the UK pensions sector mean there is only a limited link between pension schemes and financial stability.

The test also concluded that alongside those flexibilities, high quality risk management and strong employer covenants are key for the resilience of UK schemes.

TPR's executive director for regulatory policy Andrew Warwick-Thompson said the flexibilities of UK pension schemes means they can respond to adverse market conditions.

"The report highlights certain risks and vulnerabilities for defined benefit schemes under particular stress scenarios, but the scenarios tested by EIOPA were severe.

"The long term nature of pension liabilities means UK schemes and their sponsors can absorb market conditions using recovery plans," he said.

TPR provides technical input to EIOPA and says it worked closely with UK schemes and the UK pensions industry to reflect the UK position while minimising the burden for schemes taking part in the stress test.

The Pensions and Lifetime Savings Association (PLSA) described the results of the stress test as "disappointing" with chief executive Joanne Segars criticising the concept of the holistic balance sheet.

Segars said: "It is very disappointing to see EIOPA still pressing ahead with the holistic balance sheet concept, now renamed the common methodology for the stress tests."

"EIOPA admits this is no more than a work in progress so there can be no justification for using as the basis of this exercise."

Segars added that PLSA was pleased to see the report acknowledging that pension schemes are "robust long-term institutions able to respond to economic shocks."

Andrew Vaughan, partner at independent consultancy Barnett Waddingham, also confirmed that UK flexibility allows employers and trustees to address risks.

He said: "We would hope EIOPA recognises this in any future advice to the European Commission."

First published 28.01.2016

Lindsay.sharman@wilmingtonplc.com