By Sophie Baker
Realistically, it is unlikely that Europe will see the evolution of a pan-European pensions market within the next ten years, say leading pension experts in a survey by Allianz Global Investors AG (AllianzGI).
With the vast majority of European pension schemes shifting towards defined contribution (DC), cost calculability has been at the forefront of these amendments, said AllianzGI. However, the UK cited cost reduction as very important.
Poor financial education is still seen as the biggest obstacle to improved DC plans, although there is also a general consensus that the financial crisis will not lead to a political rollback of funded pensions, instead accelerating the shift to DC plans.
The report, Defining the Direction of Defined Contribution in Europe: Results of an Expert Survey, looks at experts' beliefs on the development of DC plans over the next five to ten years in the biggest European retirement markets: France, Germany, Italy, the Netherlands, Switzerland and the UK.
"The future is notoriously difficult to predict - but by drawing on the profound insight and expertise of the survey participants the results produce a solid and well-founded snapshot of the expected further evolution and future trends of defined contribution in Europe," commented Brigitte Miksa, head of international pensions at AllianzGI.
Eighty-nine per cent of experts said they expect to see growth in the occupational DC market and report an ongoing shift from DB to DC (81 per cent). In Switzerland this is particularly evident, at 93 per cent, and in the UK (97 per cent). Only 46 per cent of experts have seen a shift towards DC in France, and Dutch experts expect hybrid pension schemes to dominate.
Author of the report, Alexander Boersch, added: "The risk of DC has crucial ramifications for the pension payout phase, and the question of how to convert assets to retirement income is critical. Our survey shows that the inflation-indexed annuity is highly popular among European experts. A majority of Italian, Dutch and German experts see it as a suitable solution. Lump-sum payments, in contrast, are not considered a good solution, and support for other payout solutions varies from country to country."
It is predicted that protection mechanisms are to play a greater role in DC plans, with some countries expecting to see changes in asset allocation and the establishment or expansion of formal investment guarantees. More than three quarters of the experts surveyed said protection mechanisms applying built-in risk management strategies will play a greater role in DC plans due to the effects of the financial crisis, and a shift towards less risky asset classes is expected in Germany (80 per cent), the Netherlands (71 per cent) and in Italy (69 per cent).