EIOPA raises expectations on national supervisors to monitor IORP liquidity risk

The European Insurance and Occupational Pensions Authority (EIOPA) has released an Opinion urging national supervisors to enhance scrutiny of liquidity risk in Institutions for Occupational Retirement Provision (IORPs), underscoring the need for robust frameworks capable of withstanding sudden cash demands.

EIOPA has noted that liquidity shocks for IORPs can stem from sharp downturns in contribution income or investment returns, as well as rapid increases in cash outflows triggered by early withdrawals or outgoing transfers.

A particular concern relates to margin and collateral calls on derivative positions used to hedge interest rate and currency risks, which the Authority has raised in the past.

In its Opinion, EIOPA warned that “the absence of readily available and diverse liquid assets may force pension funds into selling assets at steep discounts to raise cash. Such fire sales may have spillover effects to financial markets and other financial institutions”.

The Opinion has delivered a suite of supervisory expectations aimed at reinforcing liquidity resilience. Supervisors are now expected to:

• monitor and assess IORP liquidity exposures, including vulnerability to margin calls;
• require IORPs with material exposures to incorporate liquidity risk into their overall risk management, including stress testing of cash inflows and outflows;
• ensure maintenance of sufficient liquid asset buffers, contingency plans, and governance structures aligned with stress scenarios.

Significantly, EIOPA emphasises that these requirements should be applied on a risk‑based and proportionate basis, tailored to each IORP’s exposure and the heterogeneity observed across member states.

This guidance closely follows the launch of EIOPA’s 2025 liquidity stress test in April, which tests the sector’s resilience to two contrasting yield curve shock scenarios over a 90‑day period. The test specifically assesses how rapid interest rate shifts could trigger margin calls and trigger stress in liquidity profiles across IORPs.

According to EIOPA, the Opinion is effective immediately and addresses national competent authorities under Article 4(2) of the EIOPA Regulation. It follows a broad consultation in late 2024 and includes a detailed impact analysis, feedback summaries and stakeholder responses.

Risk managers within IORPs must now prepare for enhanced regulatory scrutiny by implementing forward-looking scenarios for both inflows and outflows (stress testing), maintaining adequate high-quality liquid assets (liquidity buffers), developing and routinely testing  contingency plans, and embedding liquidity strategy and monitoring within senior management responsibilities (governance).

For supervisors, EIOPA is demands improved surveillance tools, including regular collection of derivative exposure data and enhanced sensitivity analyses to catch nascent liquidity threats early eiopa.europa.eu+9eiopa.europa.eu+9aeip.net+9eiopa.europa.euEuropean Pensions.

Lessons learnt

EIOPA’s move reflects lessons learned from the 2022 UK Gilt market turbulence, when pension funds faced acute liquidity pressures due to concentrated derivative exposures. The guidance aims to minimise similar systemic risks within the EU and to strengthen member and beneficiary protection within occupational schemes, the Authority stated.

With this Opinion, EIOPA is signalling a marked shift towards heightened liquidity resilience across the European occupational pensions landscape — an evolution supervisors and IORPs cannot afford to overlook.

Read the digital edition of IPE’s latest magazine