Two of Europe’s key pension associations, PensionsEurope and the European Association of Paritarian Institutions (AEIP), have welcomed the results of the European Insurance and Occupational Pensions Authority’s (EIOPA) 2025 IORP stress test published earlier this week.

For the first time in its annual stress test of the sector, the supervisory authority conducted a pan-European exercise focusing on liquidity risks, which it described as “highly relevant in today’s tense and uncertain macroeconomic environment.”

https://www.europeanpensions.net/ep/EIOPA-stress-test-flags-margin-call-liquidity-risks-for-European-pension-funds.php

In total, 156 IORPs from 18 countries participated, representing approximately 60 per cent of IORPs’ assets in the European Economic Area (EEA).

PensionsEurope secretary general/CEO, Matti Leppälä, said the results demonstrated the “robustness of EEA IORPS navigating uncertain geopolitical environments”.

The test applied two severe but plausible stress scenarios and also allowed for ‘management action’, such as the sale of assets, reduction in trading activities, or rebalancing of portfolios, to mitigate the impact of the shocks.

On this, Leppälä said IORPs’ ability to implement effective management actions “underscores their commitment to safeguarding the long-term interests of pension beneficiaries”.

“The availability of a sufficient cash reserve and adequate management actions is also crucial in ensuring that IORPs can withstand the simulated shocks simulating adverse economic developments," he said.

Additionally, Leppälä said the stress test highlights the importance of diversified asset allocation strategies, “particularly in the face of geopolitical uncertainties and market volatility”.

“The stress test results reaffirm that IORPs are well-positioned to support adverse developments in uncertain environments,” he said.

In recognition of EIOPA’s work on the stress test, AEIP executive director, Simone Miotto, thanked the authority for its efforts and for its engagement throughout the preparatory phase and the execution of this exercise.

“We are pleased to note that this year’s stress test reaffirms that IORPs in the EEA hold a sufficient level of liquid assets, enabling them to withstand severe market shock scenarios.

“The stress test shows that the current risk management framework for IORPs is fit for purpose as EEA IORPs do not have any liquidity weaknesses, and have a wide range of resources, tools, and expertise to address any adverse market conditions, while continuing to deliver adequate retirement income to their members and beneficiaries.”

Furthermore, he also welcomed EIOPA’s decision not to apply a holistic balance sheet approach in the 2025 IORPs’ stress tests. This, he said, helped to reduce the reporting burden for the pension funds participating in the stress test.

“Additionally, an asset-only methodology is more appropriate for a comprehensive and comparable analysis of all IORPs, irrespective of whether they offer defined benefit (DB) or defined contribution (DC) pension schemes. Given the increasing shift towards DC pensions, AEIP encourages EIOPA to continue using this approach in future stress test exercises for IORPs,” Miotto added.

Both associations said they remain committed to continued cooperation and engagement with EIOPA with the aim of further improving future stress tests for IORPs.

The next EIOPA IORP stress test will take place in 2028.

---