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Thursday 19 July 2018

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Sterling’s depreciation impacts asset growth of EEA – EIOPA

Written by Natalie Tuck
20/12/17

The depreciation of the pound following the UK’s Brexit vote is the cause of such a small increase in occupational pension fund assets in the European Economic Area, the European Insurance and Occupational Pensions Authority said.

In its Financial Stability Report for 2017, EIOPA said total assets owned by occupational pension funds increased by 0.2 per cent for the EEA and 5 per cent for the euro area in 2016.

Although the euro area growth rate of total assets has been significant during the course of 2016, it said the overall small increase in total assets is mainly attributed to the substantial exchange rate depreciation of the GBP over the EUR in 2016, which negatively affected the EUR value of total assets in the UK.

In addition, it said the UK and the Netherlands account for about 81 per cent of the European occupational pensions sector in terms of total assets under management. EIOPA said cross-country differences in the importance of the sector are mainly driven by the national set-up of pension systems and the relative share of private and public pension provision.

Both the UK and Netherlands are providing their citizens with relatively modest flat-rate state pensions, which are complemented by significant private pension provisions.

Furthermore, EIOPA said the investment allocation, as well as the average cover ratios for DB schemes remained broadly unchanged, whilst the overall active membership increased especially in DC schemes.

“The current macroeconomic environment also negatively affects the European pension sector, as confirmed by EIOPA’s 2017 Occupational Pensions Stress Test. The lack of granularity of the data available in Europe seriously limits the relevance and decisiveness of the regular risk assessment and financial stability analysis of the sector. For that reason, EIOPA published a consultation paper on information requests towards the national supervisory authorities regarding the provision of occupational pensions information,” EIOPA said.

Looking generally at the sector, EIOPA said that while the global economic outlook continues to improve, the prolonged low yield environment and low market volatility coupled with high levels of economic and political uncertainty continues to represent major challenges for European insurers and pensions funds. In this context, the impact of a sudden yield spike scenario should be assessed.

EIOPA chairman Gabriel Bernardino said: “In order to address current challenges and newly emerging risks stemming from climate change, new technologies and digitalisation, EIOPA will broaden the range of its future risk analysis and include a wider range of business and scenarios. In addition, as part of its regular vulnerability analyses, EIOPA plans to launch an EU-wide Insurance Stress Test exercise in 2018, focusing on the most relevant and current risks for the sector.”



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