Europe’s defined contribution (DC) market is expected to record an average annual growth rate of 6 per cent over the next five years, according to the latest issue of The Cerulli Edge – Global Edition.

The report estimates that the European DC market will record an average annual growth rate of 6 per cent over the next five years, compared to 3.6 per cent for the rest of the pensions industry over the same period.

Although DC assets under management (AUM) represent only around 17 per cent of Europe’s total pension assets, there is increasing focus on DC pensions throughout the region. The research finds that European DC assets could reach €5bn by 2025. By comparison, total European pension AUM is projected to reach €12trn at the same time.

“Our conservative projection is that European DC assets will amount to nearly €2.2trn by 2025, with growth linked to the implementation of pension reforms in France and the Netherlands being a success,” Cerulli European institutional asset management director, Justina Deveikyte, said.

Consolidation in the UK’s DC space and the increasing size of schemes will create further opportunities for international asset managers in a market that is already the most addressable in the region, according to Cerulli.

Total UK occupational pension fund industry assets reached almost £2.5trn in 2020. Although private defined benefit pension funds represent the majority of assets (69 per cent), the market structures are shifting toward DC pension funds. The UK accounts for more than 32 per cent of total European DC assets. Cerulli estimates that the UK DC market will grow to around €850bn by the end of 2025, with master trusts increasing their marketshare from 17 per cent to around 40 per cent.

In the Netherlands, the Future of Pensions Act, which is due to come into force on 1 Jan 2023, could be instrumental in the country becoming the second-largest DC market in Europe by 2030, with around 20 per cent of the country’s pension assets likely to be in individual DC arrangements by that date, Cerulli said. It believes that managers that have expertise in the UK DC market will have an edge in the Netherlands.

Dutch pension assets, which totalled €1.9trn at the end of June 2021, will have grown to around €2.4trn by 2025, according to Cerulli estimates. At 1 per cent of total pension assets, the Dutch DC market is small and consists mainly of low-cost DC vehicles (premium pension institution or PPIs), which saw their assets increase to €18.8bn in 2Q 2021, despite the coronavirus pandemic. PPIs’ allocations to equities stood at 64.7 per cent in 2Q 2021 (an increase of 2.5 per cent from 2020); industry-wide pension funds’ allocations to equity stood at 11.5 per cent at the end of 2Q 2021.

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