The european pension funds sector

• Pages: 34-38

4. THE EUROPEAN PENSION FUNDS SECTOR

The European occupational pension fund (PF) sector

continues to be negatively aected by the persistent

low interest rate environment. Additionally, in 2018

the sector came under increased pressure by the fall in

stock values pertaining to signif‌icant losses in IORPs’

equity investments . d g g- m s

c m s expensive in an environment wit h low long-ter m

interest r ates, so that Def‌ined Benef‌it plans’ (DB) balance

sheets are primarily aected, as they provide e mployees

with a pre- def‌ined le vel of p ension. However, also De-

f‌ined Contr ibution schemes (DC) have lost values and are

aected by the low interest rate environment. Her e, the

investment risk is with the membe r and benef‌iciar y of the

pension fund and will have to cater for the conseque nces

in their savings.

The negative eects of the challenging economic

environment are mitigated by initiatives to increase

funding and ashift towards DC pension schemes , but

demographic developments add additional strain. In-

itiatives like auto-e nrolment and auto matic incre ases in

contribution le vels help to increase funding and bring

more asset s under management. So me reforms pro mote

consolidation of the pension fund sector and br ing much

needed eciency gains, also facilitated by the transposi-

tion of t he IORP II Dire ctive (Dire ctive (EU) 2016/2341).

However, pe ople living lo nger and ot her demo graphic

challenges push the shift from DB to DC, which is indee d

incentivised by re cent national legislative develop ments.

DB schemes are often closed for new member s and in

a‘run o’ state.

4.1. KEY DEVELOPMENTS

Total assets held by occupational pension funds in-

creased by 0.4% for the EEA and decrease d by-0.5%

for the Euro Area (EA) during 2018 (Figure 4 .1). In 2018,

the Europe an IORPs sect or manages aro und EUR 3.8

trillion of asset s. The UK and NL continue to rep resent

the two largest IOR Ps markets with an increase of total

assets by 1. 2 percentage points (p.p.) for UK (EUR 1.8t n)

and aslight de crease of-1.1 p.p. for NL (EUR 1.3tn). This is

asubstantial d ecrease fro m the considerable grow th (of

over 5%) in re cent years. Whilst contributio ns remained

stable or increased, suppor ted by national initiative s, this

decrease – or slight increase – evidences the impact of

the signif‌icant impairment of the asset values in 2018.

The UK and the Netherlands account for about 82 .2%

of the European Occupational pensions sector in

terms of assets under management (Table 4 .1). The re la-

tive share of private and p ublic pensions, cultural and his-

torical dier ences drive the pension sector s in the EE A.

Both UK and NL social security and pension systems rely

heavily on priv ate pensions and in part icular on retir e-

ment income p rovided by IORP s.

The penetration rate of the occupational p ension fund

sector continued to decrease in 2018 (28% for EEA

and 21% for the EA) (Figure 4.2). 26,27 For t he majority

of the co untries, the rates d ecreased in 2018, but o ver-

all remained re latively stable. T he highest d ecrease was

observe d in NL (-11 p.p.) and in IS (-7 p.p.). Again, this is

linked to the stark decrease in asset values in 2018. Due

to the widely diverse pension systems in the EEA, pene-

tratio n rates var y signif‌icantly acr oss Europe an countries,

also considering t hat the IORP se ctor is still fairly small or

inexistent in anumber of Member St ates.

26 Penetrati on rate is calculated as the total size of assets relat ive to

GDP and gives an indication of t he relative wealt h accumulated by the

sect or.

27 EEA and EA r egions exclud e FR as 2018 d ata is not ye t available.

AN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY

34