First EU stress test of occupational retirement institutions completed
EIOPA, the European Supervisor for Insurances and Occupational Pensions, has completed its first stress test of IORPs in Europe. 17 EEA countries participated in the stress test. The results are that institutions are rather well equipped if mortality rates drop for a very long time, however a low-interest rate scenario with persistently low asset prices and high inflation put these institutions at risk.
The stress test tried to analyse the exposure to different risks of European occupational pension schemes, including defined-benefit and defined-contribution pensions. The risks tested were an unexpected increase in longevity, as well as a prolonged negative investment environment with depreciation of asset values and low interest rates.
EIOPA also looked at which population groups are impacted by the different risks. Young pension scheme members are most heavily impacted by long-term low financial returns, but have more time to recover from price falls of assets. Older pension scheme members however have no possibility to compensate short-term falls in asset values; however they are less exposed to the risk of long-term low benefit levels.
The report can be downloaded here: https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/Occupational-pensions-stress-test.aspx