Quarterly risk assessment of the occupational pensions sector
The IORP risk dashboard, based on individual occupational pensions regulatory reporting, summarises the main risks and vulnerabilities in the IORPs sector of the European Economic Area (EEA) for defined contributions (DC) and defined benefits (DB) pension schemes.
It includes a set of risk indicators covering risk categories, such as
- market and credit risks,
- liquidity risks,
- reserve & funding risks,
- ESG risks, and
- cyber risks.
July 2024 IORP Risk Dashboard
Key observations:
EIOPA's May 2024 Occupational Pensions Risk Dashboard shows that the exposure of Institutions for occupational retirement provisions (IORPs) to market and asset return risks remains high due to continued market volatility and real estate market vulnerabilities.
Macro risks are at a medium level with forecasted GDP growth for major geographical areas showing positive developments but remaining low by historical standards. Credit risks remain stable at a medium level with credit default swaps (CDS) spreads for corporate bonds increasing at the end of June 2024, while remaining broadly stable for government bonds.
Market and asset return risks are stable at a high level with volatility increasing in the fixed income and equity markets at the end of June and the latest data pointing to a continued decline in real estate prices across the Euro Area, mainly driven by commercial real estate. Recently available annual data shows a rebound in the IORPs' portfolio performance in 2023 driven by positive market returns.
Reserve and funding risks are unchanged at a medium level, with the financial position of defined benefit IORPs' remaining robust in the first quarter of 2024 supported by higher interest rates. Concentration risks are also at a medium level, with a decreasing trend compared to the previous quarter due to lower sectorial and geographical concentration in the IORPs' investment portfolio. IORPs' median exposure to banks and financial activities other than banking slightly increased.
All other risk categories are currently assessed at medium levels, with an increasing risk outlook for digitalisation and cyber risks over the next 12 months.