Scenario
EIOPA’s 2025 stress test of institutions for occupational retirement provision (IORPs) assesses the liquidity vulnerabilities of European IORPs against two distinct stress scenarios, which have been developed together with the European Systemic Risk Board and the European Central Bank.
In the “yield curve up” (YCU) scenario, EU interest rates increase sharply as market participants anticipate economic developments related to the abrupt escalation of geopolitical tensions. These geopolitical tensions cause disruptions in trade and a sharp rise in commodity prices, leading to a large upward revision in inflation expectations. In this context, the scenario assumes EU’s vulnerability to trade restrictions that causes the euro to depreciate.
In the “yield curve down” (YCD) scenario, interest rates in Europe decline sharply as market participants internalise an unexpected prolongation of geopolitical tensions, triggering a loss of confidence in financial markets. Expectations of persistently subdued investment and productivity drag down GDP growth and inflation expectations. The unanticipated prolongation of geopolitical tensions and the worsening of the economic outlook are reflected in a decline of global risk-free rates. The expected particularly severe deterioration in the euro area economic outlook also leads to a large depreciation of the euro.
For detailed information on the scenarios and on the shocks, see the ESRB Adverse scenario for the EIOPA IORP Stress Test 2025, the Technical information (here and here) and in the Technical specifications.
Objective
The primary objective of EIOPA’s stress test is to assess the impact of adverse scenarios on the liquidity position of IORPs and on the overall sector. The aggregated responses of IORPs to shocks, including those stemming from the application of management actions, are also used to assess potential spillover effects to other sectors with inherent financial stability implications.
The objective of the 2025 exercise is to assess the liquidity position of IORPs under adverse scenarios in line with the Methodological paper on IORP Stress Testing and leveraging the liquidity framework used for the insurance sector. The design of the exercise also takes into consideration the assessments and results of EIOPA’s IORPs risk dashboard and the evidence collected in the course of EIOPA’s work on the liquidity risk of products whose future payout is linked to the performance of the IORP’s investments.
Scope
The stress test is a European-wide exercise, covering IORPs with defined benefit (DB) and defined contribution (DC) schemes. The 2025 stress test exercise targets IORPs in the European Economic Area (EEA) based on the following criteria defined by EIOPA:
- Step 1 – quantitative criterion: inclusion of member states where the total assets of the registered IORPs exceeded EUR 600 million at the end of 2023
- Step 2 – quantitative criterion: inclusion of IORPs to cover at least 60% of these national markets considering of all types of schemes
- Step 3 - qualitative criterion: inclusion of IORPs based on their use of derivatives
EIOPA’s mandate
According to Article 32 of Regulation (EU) No 1094/2010 (EIOPA Regulation), EIOPA has to initiate and coordinate Union-wide assessments of the resilience of financial institutions to adverse market developments. In such assessments, EIOPA should consider the effects of economic scenarios on the financial position of IORPs, taking into account the specificities of scheme types, i.e. defined benefit (DB) and defined contribution (DC), while also considering possible impacts on the members and beneficiaries of IORPs. Hereby, EIOPA is mandated to assess the potential impact of IORPs on financial stability and the real economy. Further, liquidity risks and their effect on the financial stability of the IORP sector should be analysed.
Background information
The exercise is carried out in close cooperation with the National Competent Authorities (NCAs), which act as the direct contact points for the participating IORPs.
Between 6-17 of March 2025, EIOPA received feedback on the draft stress test technical specifications from stakeholders in the EU’s pension sector, including EIOPA’s Occupational Pensions Stakeholder Group (OPSG).
Timeline
- Participating IORPs have been invited to EIOPA’s launch event on 7 April 2025.
- From 21 April for 5 weeks, participating IORPs can make use of a dedicated EIOPA Q&A process by contacting their national competent authorities. Q&As will be regularly published on EIOPA’s website. Deadline for submitting questions is 19 May.
- By 11 July 2025, participating IORPs are expected to complete the exercise and submit the results to their NCAs.
- From mid-July to end October, the quality assurance of the results will take place through local and central validation. Therefore, participating IORPs should stand ready to react to NCAs’ requests during this period.
- From mid-October to mid-December, the drafting of the stress test report and its approval process will take place.
- The results of the stress test are expected to be published in mid-December 2025.