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Wednesday 16 August 2017

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PensionsEurope provides framework for modern pensions solutions

Written by Natalie Tuck
12/06/17

PensionsEurope has provided a framework for a modern pensions solution that draws on necessary features of a good pension system such as adequacy, sustainability, reliability and efficiency.

In its report, Towards a New Design for Workplace Pensions, PensionsEurope links the best of the defined benefit and the defined contribution world to find solutions to achieve good pension outcomes using experiences from pension systems across Europe.

Explaining its first key feature, adequacy, PensionsEurope said it comprises of “good financial outcome for beneficiaries” but it also depends on the level and length of contribution.

“The earlier one starts to contribute to a pension plan, the better the outcome in the end. Risk sharing can help to improve the welfare of people. A long-term investment strategy helps to maximise the risk/return profile in order to increase the pension outcome at the time of retirement of a person. Pension adequacy needs to be embedded in a tax framework that incentivises people to save for their retirement and employers to offer workplace pensions,” the report explained.

In terms of sustainability, PensionsEurope said it needs to be supported by a good supervisory framework seeking a balance between protection of beneficiaries, prudential supervision and the need for pension plans to invest in return seeking investments.

“Another important element of sustainability are accounting rules which take into account the long-term nature of pension plans. The sponsor of the pension plans should be able to meet its promises and make the required level of contributions. Sustainable pensions are achieved when the inflow to the pension plan is consistent and spread over time. Sustainability also needs fiscal stability.”

Furthermore, PensionsEurope noted that reliability is a feature that helps to increase trust in a pension plan. It is based on good governance, where all stakeholders have a say. If people are financially literate, they will better understand what is at stake with their pension planning and they are empowered to take the right decisions. Other important elements are transparency and communication in order to make people understand what their pension plan does for them.

With regard to efficiency, the report said a certain level of compulsion helps to ensure that people can benefit from economies of scale, risk sharing and lower costs. “Good administration is an integral part to delivering good pension outcomes. Thus, efficient and effective administration is necessary. Cost transparency and containment also contribute to an efficient pension plan,” it said.

The report has been published alongside another report on the key principles for good DC schemes. Commenting, PensionsEurope chair Janwillem Bouma said: “ PensionsEurope is a thought leader in Europe and we have designed these two reports to stimulate discussion and debate around defined benefit and defined contribution pensions. Good outcomes need to be at the heart the industry and we are confident that the thinking outlined in these publications will help the industry to develop going forward.”

Looking to the future, PensionsEurope intends to launch a follow-up report which looks at how these principles might be applied including the impact on the employer and the employee as well as the political impact and impact on the regulator.



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