Institutions for occupational retirement
provision (IORPs)
Risk Dashboard
EIOPA-BoS-24-025
February 2024
This risk dashboard, based on individual occupational pensions regulatory reporting, summarises the main risks and vulnerabilities in the EEA Institutions for Occupational Retirement Provision (IORPs) sector for the different schemes, i.e. defined contributions (DC) and defined benefits (DB), through a set of risk indicators. It should be noted that depending on the characteristics of the pension scheme, risks might not ultimately be born by the IORPs themselves but by their members and beneficiaries or their sponsors.
The risk dashboard shows for each risk indicator the distribution of the individual reported data over time together with the weighted average, capturing the relative importance of the different entities for the sector. For specific indicators, this information is complemented by relevant data from external sources.
February 2024 IORP Risk Dashboard
The reference date for IORP data is Q3-2023 for quarterly indicators and 2022-YE for annual indicators. The cut-off date for indicators based on data from external sources is end-December 2023. The Level (colour) corresponds to the level of risk as of the reference date, the Trend is displayed for the 3 months preceding the reference date and the Outlook is displayed for the 12 months after the reference date. The latter is based on the responses received from 21 national competent authorities (NCAs) and ranked accordingly to the expected change in the materiality of each risk (substantial decrease, decrease, unchanged, increase and substantial increase). More details can be found in the appendix.
Key Observations
Macro risks
Macro-related risks are now at medium level and show a stable trend, with positive developments related to the indicator on average inflation forecasts for the 4 quarters ahead which slighly decreased to 2.5% (2.9% in the previous quarter), below the levels reached during 2022. The indicator on average forecasted GDP growth for the 4 quarters ahead is standing at 0.8% in the fourth quarter of 2023 after 0.7% in the previous quarter. Upward revisions for US and CH GDP growth more than compensated downward revisions for BRICS, UK and EU, when considering IORPs investment exposures. Euro area wage growth increased to 5.3% in the third quarter of 2023 (4.5% in the previous quarter). The weighted average of the 10 year swap rates for major currencies moved downwards due to decreasing rates across all currencies, standing at 2.7% in the fourth quarter of 2023 (3.6% in the previous quarter). Unemployment rates (weighted average across major geographical areas) are stable compared to the previous quarter, standing at 5%.
Note: Average of forecasts four quarters ahead, weighted average for
Euro area, United Kingdom, Switzerland, United States and BRICS based on
EEA IORPs’ investment exposures.
Source: Bloomberg Finance
L.P.
Note: Weighted average for EU, Switzerland, United States and China
based on EEA IORPs’ investment exposures.
Source: Refinitiv and ONS
UK
Note: Weighted average for EUR, GBP, CHF and USD based on EEA IORPs’
investment exposures.
Source: Refinitiv
Source: Eurostat: EA Labour Cost Index (LCI)
Source: Bloomberg Finance L.P.
Credit risks
Credit risks are at medium level. The CDS spreads for corporate and sovereign bonds, which are the largest investment categories for IORPs, slightly receded in the fourth quarter of 2023. The median exposure of IORPs towards sovereign and corporate bonds as a share of total assets was at 13% and 3.2%, respectively, in the third quarter of 2023 (21% and 15.6% when considering exposures via collective investment undertakings based on annual data). IORPs’ investments in loans and mortgages are limited, with both the median and weighted average standing below 1.5%. IORPs’ investments have on average a CQS of 1.6 (median in the third quarter of 2023), corresponding to an S&P rating between AA and A. The median exposure of IORPs to below investment grade assets (with a CQS higher than 3) is low (0% in the third quarter of 2023), though when considering the weighted average the figure increases (5.7%), indicating higher exposures for larger IORPs. The correlation between the debt-service ratio of non-financial corporations and non-financial corporate bond spreads, aimed at capturing potential credit risk mispricing, became more negative in the second quarter of 2023.
Note: Left scale shows the distribution of exposures excl. collective
investment undertakings (inter-quartile range and median), right scale
the risk measure
Source: EIOPA Occupational Pensions Regulatory
Reporting and Bloomberg
Note: Left scale shows the distribution of exposures excl. collective
investment undertakings (inter-quartile range and median), right scale
the risk measure
Source: EIOPA Occupational Pensions Regulatory
Reporting and Bloomberg
Note: Left scale shows the distribution of exposures excl. collective
investment undertakings (inter-quartile range and median), right scale
the risk measure of EA. This indicator is only relevant for some
jurisdictions
Source: EIOPA Occupational Pensions Regulatory
Reporting and ECB
Source: EIOPA Occupational Pensions Regulatory Reporting
Note: The indicator includes exposures via collective investment
undertakings, i.e. look-through is applied.
Source: EIOPA
Occupational Pensions Regulatory Reporting and Bloomberg
Note: The indicator includes exposures via collective investment
undertakings, i.e. look-through is applied.
Source: EIOPA
Occupational Pensions Regulatory Reporting and Bloomberg
Source: EIOPA Occupational Pensions Regulatory Reporting
Source: BIS: Debt-service ratio NFCs and Bloomberg: LECFOAS Index
Market & asset return risks
Market and asset return risks are stable at a high level due to the still high volatility in bond markets, whereas volatility in equity markets as measured by the VSTOXX index slightly decreased. The median exposure of IORPs towards equity as a share of total assets was at around 25% in the third quarter of 2023 (including exposures to collective investment undertakings investing in equity). The latest available data shows a 4% decline in real estate prices in the first quarter of 2023 when compared to the same quarter of the previous year mainly driven by commercial property prices. The median exposure of IORPs towards property as a share of total assets is limited (1% of total assets in the third quarter of 2023), though the figure is higher when considering the weighted average. This indicates higher exposures for larger IORPs. Also, exposures to assets denominated in foreign currency seem to be higher for larger IORPs, with the median exposure at 2.1% and the weighted average at 25.3%. Duration of the IORPs’ assets is overall stable standing slightly above 5 years. Geopolitical turmoil in 2022, mainly caused by the Russian invasion of Ukraine, combined with the monetary tightening by central banks, raised asset returns risks, with IORPs’ experiencing negative returns on their portfolio investments. Costs, calculated as the sum of administrative, investment and other expenses over total assets showed some stability, with the median value slightly shifted up (0.55% from 0.47%) and the weighted average slightly moved down (from 0.66% to 0.6%). This suggests that costs for relatively large IORPs dropped, but for relatively small IORPs moved up.
Note: Left scale shows the distribution of exposures incl. collective
investment undertakings investing in equity (inter-quartile range and
median), right scale the risk measure
Source: EIOPA Occupational
Pensions Regulatory Reporting and Bloomberg