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Wednesday 28 June 2017

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Europe must tackle ‘unprecedented challenge’ of pensions strain

Written by Natalie Tuck
13/02/17

European policymakers must act now to tackle the “unprecedented challenge” of the pensions strain that the union faces, according to Insurance Europe.

The federation has noted how fewer workers and more retirees put a huge and growing strain on state pension system. Therefore, policymakers must make pension systems more sustainable, encourage people to save more and remove regulatory barriers to avoid harming long-term investment.

Its latest publication, A Blueprint for Pensions, stresses the importance of saving for retirement and sets out what policymakers need to do to get people saving more. These include raising awareness of the need to save, notably by promoting tracking services through which citizens can view their expected future pension entitlements; stimulating the widest possible uptake of supplementary pension arrangements through the most appropriate enrolment systems; and, introducing or maintaining stable, effective tax incentives for supplementary pensions.

Commenting, Insurance Europe director general Michaela Koller noted how discussions around demographics 20 years ago sounded like a “futuristic and theoretical issue” but now they have become serious problems for governments across Europe.

“However, when you look another twenty years down the line, these challenges will have increased substantially to the point where governments could find it almost impossible to provide an adequate retirement income to citizens. This is a difficult situation, but one thing is clear: to avoid passing these problems on to future generations, we must act now. While there is no single policy measure or solution that will fix this challenge, if picked up widely and consistently, our Blueprint’s proposals could help to significantly reduce the pensions savings gap,” she said.

These recommendations are designed to feed into the European Commission’s work on the pan-European Pensions Product (PEPP). Insurance Europe believes that it is crucial for any work on the PEPP to focus primarily on supporting national efforts of closing the pensions gap and generating long-term investments.
In addition, as well as raising awareness on saving, Insurance Europe stated that future pension adequacy depends on more than how much individuals save or how early they start. It believes investing in a range of assets that provide adequate returns can be as important as saving enough.

“Insurers have a role to play as they can provide policyholders with the opportunity to benefit from higher returns available from certain asset classes, while limiting policyholders’ risk exposure by using adapted, long-term investment strategies. Policymakers must ensure that regulation does not prevent insurers from offering well-designed, long-term, collective pension products offering exposure to such assets,” the report said.

Koller said: “To avoid damaging the returns that savers receive from pension products, EU rules like Solvency II must not make it unnecessarily expensive for insurers to make the long-term investments needed to back these products. Currently, Solvency II capital charges for long-term investments do not reflect the risks insurers face, and so are needlessly high and must be adjusted.”



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