DNB pointed out that this impact was the consequence of pension funds’ relatively large securities holdings for indexation purposes, and also because pension funds only partly hedged interest rate risk.The regulator said it was important that pension funds explained their vulnerability in such extreme scenarios to their members. EIOPA also said communication and transparency was important. The Dutch Pensions Federation emphasised that the most recent stress test also showed that pension funds had a stabilising effect on financial markets and that there were no systemic risks.It also noted that Dutch pension funds frequently conducted asset-liability management studies.The Pensions Federation also noted that EIOPA had improved its testing method by using a cash flow analysis, which proved to be a better proxy for the Dutch financial assessment framework (FTK).However, in strong criticism, PensionsEurope seemed to state the European supervisor did not use cash flow analysis. The stress test carried out by the European Insurance and Occupational Pensions Authority (EIOPA) confirmed the Dutch pensions sector was vulnerable to shocks on the financial markets, Dutch supervisor De Nederlandsche Bank (DNB) has said. “An extremely negative but imaginable scenario would have a large impact on pension funds’ assets as a result of the combination of offered nominal certainty and an indexation target,” it said.Dutch pension funds participating in the stress test represented more than 50% of the country’s total pension assets and participants.In the ‘double shock’ scenario modelled by EIOPA – a steep drop in security prices and a fall in interest rates – funding of Dutch pension funds would drop by 24 percentage points on average. This was roughly equivalent to the size of the financial buffers that funds are required to hold.