UK occupational pension scheme assets have grown at a faster pace compared to their European counterparts, but continue to face the challenges of the current-low yield environment, according to EU pensions watchdog EIOPA.
Average assets among European workplace schemes have increased by 6% over the past year, bringing the total volume of the sector to €3.8trn in assets, while UK assets have grown by 7% over the past year, despite a relatively higher allocation to fixed income.
While most European schemes reduced their bond investment in favour of growth oriented assets, UK schemes increased their gilt investments from 34% to 38% over the past year, in a bid to de-risk their schemes balance sheets, given the relatively higher age of scheme members.
The watchdog does not analyse the reasons for the higher growth rates in the UK but improving gilt yields as a result of last year’s Bank of England rate hike will have contributed to slightly stronger growth rates in the UK.
In contrast, schemes in the Netherlands, the second biggest occupational pension scheme market in Europe, reduced their sovereign bond allocation from 28% to 27% year on year and increased equity investments from 40% to 41%.
Overall, European pension schemes tend to be more invested in equities than the insurance sector, the watchdog highlights. “Increased investments in equity may be driven by the prolonged low interest rate environment as well as by the positive market developments in the equity markets over the last two years. Subsequently, the exposure of the pension funds to market risk has also increased” EIOPA warns.
The UK, alongside the Netherlands, stand out from the European pensions landscape due to the dominance of their occupational pension scheme sectors, whose combined assets represent 82% of of European workplace pension scheme assets, EIOPA data show.
