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This risk dashboard, based on individual occupational pensions regulatory reporting, summarises the main risks and vulnerabilities in the European Economic Area (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 borne 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.


January 2025 IORP Risk Dashboard

The reference date for IORP data is Q3-2024 for quarterly indicators and 2023-YE for annual indicators. The cut-off date for indicators based on data from external sources is end-December 2024. 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 14 national competent authorities (NCAs) and ranked according 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 at a medium level with the weighted average of the 10-year swap rates for major currencies showing an increase (2.8% in the fourth quarter of 2024), after the decrease observed in the previous quarter (2.6% in the third quarter of 2024). The average forecasted GDP growth and inflation (across main geographical areas) for the 4 quarters ahead remained overall stable at 1.5% and 2.2%, respectively, in the fourth quarter of 2024. Unemployment rates (weighted average across major geographical areas) remained at 5.1% in the third quarter of 2024, while euro area wage growth slightly declined to 4.6% (4.7% in the previous quarter). Looking ahead, geopolitical tensions are shifting dynamics in key economies, raising concerns about weakening international cooperation and increasing risks and uncertainties.



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.

Source: Eurostat, Euro Area Labour Cost Index (LCI)

Note: Weighted average for EU, Switzerland, United Kingdom, United States and China based on EEA IORPs’ investment exposures.
Source: Refinitiv and Office for National Statistics (ONS) UK

Note: Weighted average for EUR, GBP, CHF and USD based on EEA IORPs’ investment exposures.
Source: Refinitiv

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.

Credit risks

Credit risks remain at medium level. Credit default swaps (CDS) spreads for government and corporate bonds remained overall stable (9.8 bps and 55.8 bps) at end-December 2024 when compared to September. The median exposure of IORPs towards sovereign (excluding exposures via collective investment undertakings) as a share of total assets remained unchanged (14.3%), while for corporate bonds slightly decreased (2.1% from 2.9%) in the third quarter of 2024. IORPs’ investments in loans and mortgages are limited, with the household debt-to-income ratio for the euro area decreasing by 2 p.p. to 84.4% based on the latest available data (Q2-2024). 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 less negative in the second quarter of 2024. In terms of credit quality, the median average CQS of IORPs’ investments was 1.6 in the third quarter of 2024, 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% of total assets), though when considering the weighted average for the sector the figure increases (5.4%), indicating higher exposures for larger IORPs.



Note: The indicator includes exposures via collective investment undertakings, i.e. look-through is applied.
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

Note: Left scale shows the distribution of exposures excl. collective investment undertakings (inter-quartile range and median), right scale the risk measure for Euro Area. This indicator is only relevant for some jurisdictions
Source: EIOPA Occupational Pensions Regulatory Reporting and ECB

Source: EIOPA Occupational Pensions Regulatory Reporting

Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Weighted average of the debt-service ratio of non-financial corporations (NFCs) for Germany, Spain, France, Italy, Netherlands, United Kingdom and United States based on EEA IORPs’ investment exposures. Correlation between the debt-service ratio of NFCs and the credit spread of NFCs bonds based on a 12-quarter rolling window
Source: BIS database for debt service ratios for the private non-financial sector and Bloomberg, LECFOAS Index

Market & asset return risks

Market and asset return risks remain high with bond market volatility stabilizing at end-December, but still elevated compared to historical norms. The volatility in the equity markets as measured by the VSTOXX index remained broadly stable. In terms of investments, the median exposure to bonds and equity as a share of total assets (including exposures to collective investment undertakings (CIUs) investing in bonds and equity) are also largely unchanged at 54.4% and 25.9%, respectively, in the third quarter of 2024. Real estate prices continued to decline across the Euro Area although to a slower pace than last quarter (-4.2% in the second quarter of 2024 from -7.5% in the previous quarter), mainly driven by commercial property prices. The median exposure of IORPs towards property as a share of total assets is limited (below 1% in the third quarter of 2024), though the figure is higher when considering the weighted average for the sector (6.0%). 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 1.4% of total assets and the weighted average at 26.5%. The median duration of IORPs’ assets is overall stable standing slightly above 5 years (weighted average for the sector slightly above 7 years).



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

Note: Left scale shows the distribution of exposures incl. collective investment undertakings investing in bonds (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 incl. collective investment undertakings investing in real estate (inter-quartile range and median), right scale the risk measure. The growth of real estate prices is calculated as a weighted average of commercial and residential real estate prices based on EEA IORPs’ investment exposures
Source: EIOPA Occupational Pensions Regulatory Reporting and ECB

Source: EIOPA Occupational Pensions Regulatory Reporting

Source: EIOPA Occupational Pensions Regulatory Reporting

Source: EIOPA Occupational Pensions Regulatory Reporting

Note: The indicator is calculated based on reported investment income including unrealised gains and losses
Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Tax expenses are excluded
Source: EIOPA Occupational Pensions Regulatory Reporting

Liquidity risks

Liquidity risks are at medium level with a decreasing trend driven by the positive developments in the derivative positions. The median net market value of IORPs’ derivatives shifted closer to zero (-0.3% in Q2-2024 to 0% of total assets in Q3-2024) due to the lower interest rates in Q3-2024. Similarly, the weighted average shifted to -1.8% in the same quarter (-3.5% in the previous quarter). This indicator and the indicator on cash holdings tend to mirror each other and therefore, grossly, balance out, in particular for the largest IORPs. The median value of the liquid assets ratio remained unchanged at around 52% in the third quarter of 2024.



Note: The indicator is based on a weighting and bucketing of asset classes according to their liquidity
Source: EIOPA Occupational Pensions Regulatory Reporting

Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Net market value of derivatives as a share of total assets
Source: EIOPA Occupational Pensions Regulatory Reporting

Note: The existence of negative cash holdings can result from collateral positions that are reported as negative assets
Source: EIOPA Occupational Pensions Regulatory Reporting

Source: EIOPA Occupational Pensions Regulatory Reporting

Reserve & funding risks

Reserve & funding risks for defined benefit (DB) schemes remain at medium level with financial positions remaining robust in the third quarter of 2024. The median excess of assets over liabilities remained stable at around 20.4% in the third quarter of 2024. Similarly, the median funding ratio, calculated as assets over technical provisions stayed at 122.1%.



Note: The indicator is calculated as excess of assets over liabilities as a share of liabilities
Source: EIOPA Occupational Pensions Regulatory Reporting

Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Indicator is calculated based on the annual latest available expectancy at birth for all EEA countries
Source: Eurostat

Note: Indicator is calculated based on the annual latest available remaining life expectancy for a 65 years old person for all EEA countries
Source: Eurostat

Concentration risks

Concentration risks are at medium level. IORPs’ median exposure to banks slightly decreased, standing below 1% (0.9% in the third quarter of 2024 from 1.3% in the previous quarter). Exposures to other financial institutions (other than banking) and domestic sovereign debt remained overall stable at 3.3% and 1.4% of total assets, respectively, in the third quarter of 2024. The weighted averages for both indicators remained unchanged at 9.7% and 4.9%, respectively, pointing to higher exposures for larger IORPs. The portfolio concentration per asset class, sector and country, measured by the Herfindahl Hirschman index, remained broadly unchanged compared to the previous quarter. These measures are calculated excluding investments via collective investment undertakings (CIUs), therefore showing high levels of concentration for those IORPs investing mainly via this asset class.



Note: Banks comprise all activities identified with NACE code K64.1.9. The numerator excludes collective investment undertakings
Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Other financial institutions comprise all activities identified with NACE codes K64 (excl. K64.1.9.), K65 and K66. The numerator excludes collective investment undertakings
Source: EIOPA Occupational Pensions Regulatory Reporting

Note: The numerator excludes collective investment undertakings
Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Herfindahl Hirschman index computed on six balance sheet asset classes (government bonds, corporate bonds, equities, property, cash and cash equivalents and loans and mortgages). Collective investment undertakings (CIUs) are excluded. The indicator includes small IORPs investing mainly via CIUs and thus with a high level of concentration
Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Herfindahl Hirschman index computed on issuer sector excluding collective investment undertakings (CIUs), cash and deposits and property. The indicator includes small IORPs investing mainly via CIUs and thus with a high level of concentration
Source: EIOPA Occupational Pensions Regulatory Reporting

Note: Herfindahl Hirschman index computed on issuer country excluding collective investment undertakings (CIUs), cash and deposits, mortgages and loans and property. The indicator includes small IORPs investing mainly via CIUs and thus with a high level of concentration
Source: EIOPA Occupational Pensions Regulatory Reporting

Digitalisation & cyber risks

Digitalisation and cyber risks are at medium level. The materiality of these risks for IORPs as assessed by supervisors stabilized in the fourth quarter of 2024, after a year of increased trend driven by the on-going geopolitical tensions and related uncertainty.



Note: Scores compiled based on the assessment of probability and impact (lhs: scale from 1 to 4) of digitalisation & cyber risks from National Competent Authorities. The average for each answer across countries is then normalised (rhs: scale from 0 to 100)
Source: EIOPA’s Pension Bottom-up Survey

APPENDIX





Arrows for the Trend show changes for the 3 months preceding the reference date, while arrows for the Outlook show expected developments for the next 12 months.

Description of risk categories

Macro risks

This category depicts developments in the macro-economic environment that could impact the IORP sector. This category is based on publicly available data on macro variables that may be used for broader macroprudential monitoring and analysis.

Credit risks

The category assesses the vulnerability of the IORP sector towards credit risks. To achieve this aim, credit-relevant asset class exposures of the IORPs are combined with the relevant risk metrics applicable to these asset classes.

Market & asset return risks

The risk category depicts the main risks IORPs are exposed to on financial markets and the level of asset returns and costs (e.g. administrative, investments and other). For most asset classes these risks are being assessed by analysing both the investment exposure of the IORP sector and an underlying risk metric. The exposures give a picture of the vulnerability of the sector to adverse developments; the risk metric, usually the volatility of the yields of the associated indices, gives a picture of the current level of riskiness.

Liquidity risks

Liquidity risk can be defined as the risk that an institution will not be able to meet its payment obligations timely or without generating excessive cost.

Reserve & funding risks

This category aims to assess the level of the own funds of IORPs and the robustness of its technical provisions. This risk category is only relevant for IORPs executing defined benefit pension schemes (DB).

Concentration risks

This section assesses different concentration risks IORPs are exposed to via their portfolio investments. It depicts various concentration types.

Digitalisation & cyber risks

The category aims at monitoring potential financial stability risks related to an increased digitalisation, which exposes the IORP sector to risks from a digital operational resilience perspective (i.e. cyber security risks).


  1. Due to limited data availability, only environmental risks are currently considered in the category. As more data will be available, social and governance risks should be also considered.↩︎

 

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