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IOPS Principles of Private Pension Supervision


The IOPS Principles of Private Pension Supervision were first approved in 2006. This document contains the revised Principles, approved in 2010.

The objectives of private pension supervision focus on protecting the interests of pension fund members and beneficiaries, by promoting the stability, security and good governance of pension funds. Pension supervision involves the oversight of pension institutions and the enforcement of and promotion of adherence to compliance with regulation relating to the structure and operation of pension funds and plans, with the goal of promoting a well functioning pensions sector. In addition, achieving stability within the pension sector is an important part of securing the stability of the financial system as whole (as investments made by pension funds have a major impact on the real economy in many countries). Pension supervision should be mindful of financial innovation. .

The provision of pensions is of fundamental economic and social importance, ensuring the successful delivery of adequate retirement income. The effective supervision of pensions, and of the institutions that provide pension products and services, is required to ensure the protection of consumers – a necessary task with any financial product being sold to non-professionals. Pension supervision is required to achieve the degree of protection needed to support privately managed savings and is a means to help pensions adapt to market risks. Such risks can be particularly problematic with regard to pensions due to the characteristics of these financial products, such as:

  • the long-term nature of the contract involved, and the subsequent requirement for incentives or even compulsion to overcome individual’s ‘myopia’ towards long-term savings;
  • their coverage of a wide social and economic range of the population (particularly where incentives or compulsion are applied);
  • the low risk tolerance of pension fund members and beneficiaries, as subsistence rather than discretionary savings is often involved;
  • the complexity of the products, involving tax issues, assumptions over future salaries, longevity, difficulty in the valuation of assets and liabilities etc. – a complexity which is beyond the financial literacy of most investors and which gives rise to asymmetrical information between pension providers or financial intermediaries and consumers;
  • sometimes limited competition and choice, with decisions often made collectively by employers and/ or unions;
  • their potential impact on financial market and economic stability given their large and increasing size relative to financial markets and countries’ GDP;
  • their ‘social’ as well as financial roles, which is becoming more important as reforms in many countries have given an increasing role to private pensions (through tax incentives and other public policy), as aging populations are in some cases making social security an ever increasing burden on government resources, forcing public pensions to be reduced;
  • the rapid pace of financial innovation which creates new, untested financial products;
  • the increased complexity and sophistication of financial crime.