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 gg-ms

c m s expensive in an environment with low long-term

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

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

with apre-def‌ined level of pension. 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-enrolment and automatic increases in

contribution levels 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 the IORP II Directive (Directive (EU) 2016/2341).

However, people living longer and other demographic

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 members 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 European IORPs sector manages around EUR 3.8

trillion of assets. The UK and NL continue to represent

the two largest IORPs markets with an increase of total

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

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

asubstantial decrease fro m the considerable grow th (of

over 5%) in recent years. Whilst contributions 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erences drive the pension sectors in the EEA.

Both UK and NL social security and pension systems rely

heavily on private pensions and in particular on retire-

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 the majority

of the countries, the rates decreased in 2018, but over-

all remained relatively stable. The highest decrease was

observed 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.

26Penetrati 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

sector.

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

AN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY

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