Defined contribution (DC) IORP assets increased by 13.3 per cent in 2023, as opposed to 7.6 per cent for defined benefit (DB) schemes, according to a report by the European Insurance and Occupational Pensions Authority (EIOPA).

Its Costs and Past Performance report on retail investment insurance and pension products confirmed the “steady move” from DB to DC pension schemes, with IORPs playing a “vital role” in Europe’s multi-pillar pension system. This is despite the total number of IORPs slightly decreasing by 2 per cent in 2022-2023, down from the previous year, due to consolidation in the market.

Looking at DB and DC schemes, in 2023, the number of active members of IORPS remained stable, reaching 35.3 million, a 2 per cent increase, and total assets managed by IORPs increased by 8.8 per cent, reaching €2.72trn.

EIOPA found that large markets, such as France, Italy and Spain, had an increase of active members in largely DC IORPS (+ 5 per cent, 3 per cent and 2 per cent, respectively).

“The composition of DC schemes is varied and mainly composed of investments funds (35 per cent) and government bonds (23 per cent) categories such as ‘other than government bonds and corporate bonds’ and ‘investment fund’ increased significantly during 2023: 45 per cent and 27 per cent, respectively,” the report noted.

Furthermore, contributions from members and sponsors increased (+6 per cent and +0.3 per cent, respectively) in 2023, with the highest number of contributions from members in France, Italy and the Netherlands.

EIOPA said that the significance of the IORPs sector in the European Economic Area (EEA), seen by the growth in contributions, means that value for money and returns are becoming “increasingly important”.

In 2023, DC IORP assets increased “significantly”, averaging an income ratio of 8.54 per cent in the EEA, better than the result of recent years, where schemes suffered from significant losses because of market downturns.

EIOPA noted: “Almost every component of the total investment income increased, including unrealised gains, dividends and interest income. In terms of costs, member states such as Croatia, Belgium, France and Malta exhibit an expense ratio above 1 per cent, which is the benchmark typically used for similar products managed by investment and mutual funds offering long-term investment options.”

Regarding personal pension products (PPPs), EIOPA found that they delivered positive net returns over the four years, up to the end of 2023, despite high costs in some countries.

“The favorable returns were particularly beneficial for investors holding PPP with unit-linked features (PPP_UL), resulting in an average net return of 2.1 per cent in the four-year period. PPP with profit participation features delivered higher net returns than previous years. On average, they delivered net returns of 1.2 per cent during the 2020-2023,” the report stated.

In addition, the costs of PPPs remained stable at a high level, with a 1.9 per cent reduction in yield (RIY) on average for PPP with UL features. In some member states, the costs of these products exceed 2.5 per cent.

“Like insurance-based investment products (IBIPs), PPPs with profit participation features tend to have lower costs than unit-linked PPPs. However, this gap is narrowing as the costs of pension products with profit participation mechanism have remained generally stable over the past four years, while a slight decrease is observed on PPP with unit-linked features,” EIOPA noted.

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