European DC assets expected to pass €10trn by 2030

European defined contribution (DC) scheme pension assets are expected to pass the €10trn mark by 2030, up from €4trn at the beginning of 2020, according to research by Indefi.

Its latest research found that market-linked DC products are to overtake traditional defined benefit (DB) schemes. Between 2014 and 2019, DC assets increased by 7 per cent, which has been attributed to several factors.

For example, major European markets such as the UK and the Netherlands are transitioning to a DC system away from a primarily DB landscape to join well established DC markets such as Sweden, Switzerland and Denmark. In other countries, such as France and Germany, the rise in DC is being driven by the need to shore up private pension coverage rates to complement a declining social safety net in insurance-driven countries.

It advises asset managers that the market is to become the “top growth” opportunity for fund managers, who should “articulate a clear vision for the future and defined where they want to play”.

Indefi noted that DC straddles the pension-insurance divide typical of the European investment management market and is divided into two macro segments. First, the ‘institutional DC’ segment, where the client is a pension institution or insurance company, which is essentially an extension of institutional ‘business as usual’ for asset managers. It amounts to €2.7trn, of which 37 per cent (€1trn) is currently outsourced to third-party asset managers.

Secondly is the ‘platform DC’ segment, where the client is a corporate sponsor or distributor, serving small-and medium-sized enterprises or individual clients, is a hybrid market mixing traditional institutional and fund distribution features. Although it is smaller than the ‘institutional DC’ segment, at €1.3trn, 62 per cent of AUM are outsourced to third-party asset managers (€800bn), underlining the attractiveness of this segment. Indefi said it is the latter where the growth will come from over the next 10 years.

Commenting, Indefi Paris partner, Richard Bruyere, said: “Until recently, it was a struggle for asset managers to define this space as a coherent market segment. Our analysis sheds light on this and shows that DC can be: An extension of the traditional institutional business for asset managers in Europe, albeit with a slightly different asset allocation twist and product/service requirements; and, overlapping with distribution, which requires asset managers to have a good grasp of the factors required for success in the fast-growing unit-linked insurance space.”

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