18/6/2009
By Sophie Baker
Pension reform will remain in limbo if the economic crisis continues, warns Allianz Global Investors AG (AllianzGI).
The asset management company has produced a paper examining the effects of the crisis, and found that government budget deficits could widen further and increase debt burdens, which in turn will increase the need for pension reforms.
AllianzGI says some governments are too distracted to implement further steps in the reform process, which until now had been particularly notable in countries that had introduced tax-favoured savings products for retirement.
"The current financial crisis has had a drastic effect on the household financial in Western Europe," commented Brigitte Miksa, head of pensions international at AllianzGI. "As a result, the role of funded pensions in the overall system of retirement provision could be put to the test in countries with mature funded pension systems. In particular, this will be a challenge for countries where second and third pillar pension provisions are still being built up."
The pension reforms in question were introduced with the aim of easing the increasing cost of first pillar pensions (public), a result of an ageing society.
"Coping with the current economic crisis will widen government budget deficits and increase debt burdens that have to be cut back in the years ahead. The end result is that governments cannot reverse pension reforms. But there could be the danger that they may become too distracted to continue their reform efforts," Miksa added.
AllianzGI said that moving forward, monetary wealth in many European countries will be driven by increase retirement savings as households seek to repair their portfolios. They also expect to see a change in the structure of financial wealth of households as they move in favour of insurances and pension products.
"The climate for long-term saving remains difficult and the extreme swings of the capital markets in the last decade have led to a massive loss of confidence among investors and those saving for retirement. This has occurred at the very time when the build up of fully-funded pensions is an increasingly urgent issue in all industrial nations." Miksa concluded.
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