Experts predict next European pensions market
trends
10 November 2009
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).
