The stress test launched by the European Insurance and Occupational Pensions Authority (EIOPA) last week will show “UK pension schemes to be exposed to considerable risk” according to LCP.

“The situation being considered in the stressed scenario is deliberately extreme. It will no doubt show UK pension schemes to be exposed to considerable risk – we expect the calculations will show risk amounting to multiple times current deficits,” LCP partner Alex Waite said.

However, he added that while it is complex, it will be a useful exercise for some companies and pension schemes as it will help them understand the risks involved.

The aim of the stress test is to assess the resilience of IORPs and their pension schemes to adverse market scenarios and a longevity scenario. The exercise will be conducted in seventeen European countries with material IORP sectors covering at least half of their national market.

The stress test covers both DB and DC schemes. IORPs providing DB schemes have to calculate the impact of adverse scenarios on a common, holistic balance sheet and their national balance sheet.

A dedicated satellite module for DC IORPs analyses the effects of a variety of shocks on future retirement income of three representative plan members, which start to receive pension benefits in five, 20 and 35 years from now.

There will also be a quantitative assessment, which will gather data of IORPs on potential uses of the holistic balance sheet within an EU-wide supervisory framework. The outcomes will be used to support EIOPA in further developing its advice to the European Commission on EU solvency rules for IORPs.

LCP partner James Atherton said an EIOPA consultation with the industry last years showed the European pensions industry was “overwhelmingly against” a holistic balance sheet.

“We all hoped the holistic balance sheet would be kicked into the long grass, but the new assessment exercise suggests that EIOPA is taking it upon itself to plough on regardless with developing complex potential rules, which appears to be a complete waste of time and money,” he added.

EIOPA’s aspiration is at least half of pension schemes, by asset value, in each country will participate in this exercise, which in the UK is being coordinated by the UK Pensions Regulator. The deadline for responses is 10 August, which LCP say leaves pension schemes little time to gather together the complex data required and to perform the calculations.

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