European reform frozen as result of economic turmoil
18 June 2009
Written 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.
