Pension schemes in EU show big shortfalls in stress test

LONDON, Dec 17 (Reuters) - A stress test of pension schemes across the European Union resulted in a shortfall of 180 billion to 216 billion euros ($198 billion to $238 billion), the EU’s insurance and pensions watchdog said on Tuesday.

Many of the schemes were also not considering the impact of environmental, climate and social risks on their investment decisions, the European Insurance and Occupational Pensions Authority (EIOPA) said in a statement.

Nearly 180 pension schemes from 19 countries participated in the test aimed at showing how they would cope with severe, theoretical market stresses.

The EU watchdog only gave aggregate results, with no scheme named. They had a combined underfunding of 41 billion euros, or 4% of liabilities at the start of the exercise, EIOPA said.

“The adverse market scenario would have led to substantial aggregate shortfalls of 180 billion euros according to national methodologies and 216 billion euros following the stress test’s common methodology,” EIOPA said.

This would have translated into an aggregate cut in benefits of 173 billion euros under the common methodology, requiring sponsors of the schemes to inject a combined 49 billion euros.

“EIOPA will follow up on the findings and analyse in more depth the investment behaviour... in particular in the persistently ultra-low and negative interest rate environment,” EIOPA said.

For the first time EIOPA’s test covered environmental, social and governance risks, commonly known as ESG.

Most of the schemes in the sample said they had taken appropriate steps to identify ESG risks to their investment decisions.

But only 30% of them have processes in place to manage ESG risks, and only 19% assess the impact of ESG factors on investments’ risk and returns, EIOPA said. ($1 = 0.9073 euros) (Reporting by Huw Jones; Editing by Emelia Sithole-Matarise)