Sponsor support valuation according to the IORP II Directive applied to Dutch pension funds

This thesis investigates the consequences of applying sponsor support valuation according to the IORP II Directive to Dutch pension funds. In the IORP II Directive a policy option is proposed by EIOPA in which a holistic balance sheet approach is introduced. Sponsor support is a conditional asset on the asset side of the holistic balance sheet. An advantage of the holistic balance sheet approach is that pension funds with different pension systems and different steering and security mechanisms can be better compared than before introducing the holistic balance sheet approach. Another advantage is that it provides harmonization of monitoring. We value sponsor support under two different methods. One method is a combination of the Black-Scholes and the Vasicek model and the other method is using the risk-neutral economic scenario set which is generated by MoSes Economic Scenario Generator. Our research shows that sponsor support can be a significant amount if a minimum funding ratio is ensured by the sponsor and can therefore be an important asset on the holistic balance sheet. Most sponsors haven’t those resources, therefore it will be a hard task for the sponsor to ensure this minimum funding ratio. Moreover, in the future this kind of contracts may be modified or may even disappear. When we introduce the policy of cutting pensions, our research shows that sponsor support is much less than without cutting pensions and therefore a sponsor needs less resources. We can conclude from the holistic balance sheet approach that it offers interesting insights, but in its current form is unsuitable as monitoring tool due to the unclear definition of sponsor support.