Significant variations in European countries’ reactions
to global downturn
27 May 2009
Written by Sophie Baker
European countries’ pension markets have experienced
mixed reactions to the global crisis, although UK businesses are at a
‘severe competitive disadvantage’ in Europe due to weaknesses
in private and state pension systems, says Aon Consulting.
The employee risk and benefits management firm has produced a report detailing
the state of the pensions markets in individual European countries. The
Netherlands, it said, recorded asset losses of 17 per cent in 2008, dropping
to EUR 575bn. Including insurance companies, total pension assets amount
to EUR 750bn. Aon found that retirees resident in the Netherlands for
most of their lives are currently entitled to just under EUR 13,000 per
year on the state pension.
Ireland, which was also named by Aon as one of the worst-performing countries,
saw falls of 24 per centduring 2008. DC assets now account for around
30 per cent of all Irish pension assets, and it is estimated that 90%
of DB schemes are currently unable to meet the statutory minimum funding
requirement for DB schemes.
Austrian pension fund assets lost around ten per cent of their value last
year, falling to EUR 11.5bn in 2008. The total asset figure is small,
Aon says, because less than 20 per cent of Austrian employees have a company-provided
scheme – the majority depend on the state pension, which provides
annual DB payments of up to EUR 38,000.
More positively, Scandinavian countries, with the exception of Iceland,
appear to have experienced fewer problems than their European counterparts.
Denmark has seen little impact on its pensions market, and are highly
regulated and secured by contracts with insurance companies. Pension savings
hit EUR 430bn at the end of 2007, and the system is almost entirely DC.
The maximum state pension stands at EUR 17,500.
Norway has been labelled by Aon as one of the strongest countries under
their review, with an official retirement age of 67 for both men and women.
The state pension, which accounts for two-thirds of all occupational pensions,
is backed by the Government Pension Fund, Global, formerly the Petroleum
Fund of Norway. The biggest issue in Norway is the shift from DB to DC
schemes, with around 50 per cent of private sector employees having DC
plans.
Sweden too has fared well in comparison to other countries, with its amalgamation
of DB, DC and state pension elements which are delivered to retirees through
insurance contracts and collective agreements. The Pay As You Go system,
the first pillar, is state-regulated and sees individuals contributing
16 per cent of their salary to pay for the benefits to existing retirees.
Six AP funds support pension provision, and act as a capital buffer within
the system. At the end of 2008 these had SEK 7,180bn in assets (EUR 650bn),
which was a slight increase on 2007. However, liabilities grew by around
6%.
The German pensions market, Aon says, has proved to be flexible and robust
in the global downturn, with its strong insurance sector providing protection
against the risk of sponsors being unable to meet pension liabilities.
Investment policies in these insurance companies are conservative, with
around ten per cent invested in equity markets. The annual state pension
in Germany delivers a maximum of EUR 26,400. In 2008, however, contractual
trust arrangements fell by between 15 and 20 per cent in 2008.
Switzerland has seen a drop of eight per cent in assets to CHF 730bn (EUR
483bn), while Spain has seen losses of around ten per cent - which Aon
considers low when taking into account the country’s conservative
investment policies.
