Quarterly risk assessment of the occupational pensions sector
The IORP risk dashboard, based on individual occupational pensions regulatory reporting, summarises the main risks and vulnerabilities in the IORPs sector of the European Economic Area (EEA) for defined contributions (DC) and defined benefits (DB) pension schemes.
It includes a set of risk indicators covering risk categories, such as
- market and credit risks,
- liquidity risks,
- reserve & funding risks,
- ESG risks, and
- cyber risks.
April 2025 IORP Risk Dashboard
Key observations:
The April 2025 Risk Dashboard on Institutions for Occupational Retirement Provision (IORPs) - based on Q4 2024 pension reporting data and Q1 2025 market data - shows that risks in the European IORP sector remain overall stable and at medium levels, amid persistent vulnerabilities stemming from high market volatility and an uncertain geopolitical environment.
Macro risks remain stable, although signs of weakness are emerging due to an increase in forecasted inflation and lower GDP growth in the first quarter of 2025. While the economic outlook may brighten depending on the policy choices of global actors, ongoing uncertainty about the commitment to free trade and international cooperation continues to weigh on current sentiment and may significantly affect the broader macroeconomic landscape.
Market and asset return risks continue to be assessed at a high level with a worsening risk outlook. These developments are mainly driven by heightened market volatility in equity and bond markets at the end of March 2025. In the beginning of April 2025, markets reacted negatively to the announcement of new US tariffs on the trade of goods. While markets have stabilized, persistent policy uncertainty and the potential for escalation continue to pose significant risks, making a further correction in asset prices likely.
Liquidity risks are showing an increasing trend given current market conditions and considering the negative developments in IORPs’ derivative positions. The sharp increase in risk-free interest rates following major defence spending announcements have led to significant margin calls on IORPs that were hedging their long-term liabilities. On the other hand, the impact of higher-than-expected rates may have been partially offset by gains on currency hedges as the euro appreciated against the US dollar. While European IORP sector has showed resilience to liquidity outflows, the need for prudent and continuous liquidity management remains as undertakings adapt to potential market shocks.
In terms of reserve and funding risks,the financial position of defined benefit IORPs remained robust in the fourth quarter of last year. Digitalisation & cyber risks are unchanged at the beginning of 2025 with no let-up in geopolitical tensions and related uncertainties.