Portugal's Insurance and Pension Funds Supervisory Authority (ASF) has published its latest pension fund risk dashboard, projecting a deterioration in the sector's risk profile amid geopolitical uncertainty, rising interest rates, elevated equity valuations and increasingly sophisticated cyberthreats. Macroeconomic risk has risen from moderately low to moderately high, while cyber and digitalization risks remain high and are expected to increase. Pension fund management companies' profitability and solvency risks remain low. Market risk remains moderately high, with a worsening outlook as higher interest rates and term premiums push up yields on debt with longer maturities. Equity valuations remain disconnected from economic and financial fundamentals, compounded by market concentration and optimistic expectations for artificial intelligence (AI). Credit risk remains moderately low but is expected to increase significantly over the next 12 months, as concerns about public debt sustainability could spread to credit spreads, particularly for heavily indebted issuers. More accessible and sophisticated AI models are accelerating the detection and exploitation of cyber vulnerabilities, while concentrated information technology infrastructure adds to exposure. Against these pressures, pension fund management companies' coverage of the required solvency margin increased to 220.2% at the end of June 2026, from 200.1% at the end of 2025. Average return on equity reached 10.3% in the first half of 2026, up 2.2 percentage points from a year earlier. Funds financing defined benefit and defined contribution plans recovered from the preceding quarter's losses, returning 4.2% and 4.7%, respectively, in the second quarter. Risks specific to both plan types remain low but are expected to rise, while liquidity risk remains moderately low and interconnectedness risk remains low.

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