The european pension funds sector

AuthorEuropean Insurance and Occupational Pensions Authority (EU body or agency)
In 2019, the European occupational pension fund sector’s
investments benef‌itted from positive developments in
the stock markets, yet, in particular the Def‌ined Benef‌it
sector, continued to be negatively aected by the persis-
tent low interest rate environment due to low discount
rates for market-consistently valued liabilitie s. The in-
vestment returns throughout the EEA have reached new
heights, marking astrong turning point from the dicult
equity markets in 2018. The prolonged low, and nega-
tive, interest rate environment aected Def‌ined Benef‌it
pension funds, as long-term guarantees continued to be
expensive. Yet, the aggregate eect of the positive mar-
ket developments throughout 2019 resulted in improved
cover ratios throughout the EEA .
Following apositive year for European IORPs with regard
to investment returns and subst antial increases in asset
market values and improved cover ratios, the sector has
been heavily aected by the market turmoil in the wake
of the Covid-19 pandemic, which swept away substantial
value gains of 2019. In line with the f‌indings of the 2019
IORP stress test, IORPs are expected to keep along-term
objective to their investments and most IORPs aim at
re-balancing to pre-stres s allocations within 12 months.
Due to the character of the crisis, IORPs may not only
face further market volatility and impairment of assets
in apersistent low interest rate environment, yet may be
subject to funding and liquidity concerns due to suspend-
ed or lowered contributions from sponsors and members.
Deteriorating coverage and funding ratios of Def‌ined
Benef‌it IORPs require supervisory monitoring and poten-
tial actions, which usually entail setting up recovery plans
and close coordination with the NCAs. The impacts of
the Covid-19 crisis may lead to benef‌it cuts for members
and may require sponsoring undertakings to f‌inance fund-
ing gaps, which may lead to additional pressure on the
real economy and on f‌inancial institutions sponsoring an
IORP. Considerations should also be given to the eects
on IORPs’ liquidity when benef‌it payments will remain rel-
atively stable or tend to increase- usually there is limited
redeemability of funds set by national law-, yet contribu-
tions from members and sponsoring undertakings may be
delayed or cannot be paid in.56
Sponsoring undertakings in heavily aected sectors by
the COVID-19 pandemic are expected to be in signif‌icant
f‌inancial distress and correspondingl y, members of such
pension funds are at risk of unemployment in the near
future. Sponsoring undertakings’ f‌inancial diculties to
maintain contributions, or in the worst case, sponsoring
undertaking’ insolvency may test national pension pro-
tection schemes. The set-up, structures and design of
such pension protection schemes are divergent amongst
Member States and the use of such may require supervi-
sory attention.
In 2019 total assets held by occupational pension
funds increased - in line with the reported return of
assets- by 15 %, yet not by increased membership or
contribution levels. In 2018, the European IORPs sector
suered from marginal and even negative investment re-
turns, so the asset-weighted average of 15% constitutes
aremarkable increase, considering growth rates of around
5% in the years before 2018.
With the departure of the UK, the Nethe rlands ac-
count for 67% of the European Occupational pensions
sector in terms of assets under man agement (Ta bl e
4.1). With EUR 1.6trn of assets under management in NL
and EEA total of EUR 2.4trn, NL is by far the biggest IORP
sector in the EEA. (Figure 4.1) End-year 2019 NL IORPs’
investment represented almost 200% of NL GDP in 2019.
Whereas the next biggest IORP sector, DE, with its EUR
235bn at year-end 2019, represent only 7% of DE GDP in
2019. (Figure 4.2)
56 Financial Times: Groups hit by coronavirus s eek to halt pension con-
tributions, 18 March 2020; ht tps://www.f 7e98-69 26-
11ea-800d-da70c 6e4d3.

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