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Addressing Europe's Pension Challenges: Strategies for Growth and Stability

Europe's pension systems face significant challenges amid changing demographics and economic pressures. As the median age rises and the working population per retiree declines, a robust reform agenda is essential. Initiatives from the 2009 G20 Pittsburgh summit and directives from the EU aim to create a safe and adequate retirement system. Key reforms in countries like Germany, Switzerland, and the UK address retirement ages, pension asset management, and sustainable pensions. Smart institutions and investment trends are vital in ensuring long-term stability in European pensions.

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Addressing Europe's Pension Challenges: Strategies for Growth and Stability

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  1. Europe’s Pension Challenges Liam KennedyEditorial Director, Investment & Pensions Europe AMAC, Beijing, 16 June 2014

  2. Melbourne-Mercer Pension Scores

  3. Increases in the median age Source: NAPF, OECD

  4. A reduction in ratio of working population per person 65+ Source: NAPF, OECD

  5. A clear reform agenda • Multi-lateral legislation from 2009 G20 Pittsburgh summit – Dodd-Frank in US and EMIR, AIFMD, MiFID II in EU • European Union Green Paper Towards Adequate and Safe European Retirement Systems (2010) • EU Green Paper The Long-Term Financing of the European Economy (2013) • Draft Directive on Pension Funds to co-ordinate the investments, security and regulation of existing funded occupational pensions (2014)

  6. Positives and negatives • Germanyis reducing the retirement age for some workers. Strong criticism from European Commission • Reforms of defined benefit pensions in theNetherlands • AV2020 reform programme in Switzerland • Auto-enrolment programme and flat rate national retirement pension in the UK

  7. The Netherlands • 90% of workforce has access to a supplementary pension • Pension assets 170% of GDP • Retirement age rises to 66 in 2018 and 67 in 2021 • A defined benefit system with high level of intergenerational risk sharing • Commitment to collective pension system • Strong regulator focused on security and promoting best practice

  8. Germany • Low levels of supplementary pensions (509bn USD, 8% of GDP) and a complicated system • Reforms of the early 2000s have not been successful in increasing pension saving • Coalition government plans to reduce the retirement age for some workers and increase entitlements for mothers

  9. Switzerland • High level of second pillar pension assets 786 billion USD, 120% of GDP • A DB/DC hybrid system • AV2020 pension reform to raise women’s retirement age to 65, introduces flexible working for older people • Controversy over the calculation of retirement benefits for

  10. United Kingdom • Largest European pension market with assets of 3.6 trillion dollars (131% of GDP) • But declining participation in DB pensions and inadequate pensions savings • Automatic enrolment programme for low-earners and a state backed fund called NEST • Legislation to introduce hybrid risk-sharing pension funds

  11. Smart public policy • Automatic increase retirement age in line with longevity (Denmark, Greece and Italy) • Incentives to delay retirement (Sweden, Croatia) • Flexible working for the 60+ (France, Switzerland) • Access to lifelong learning for 60+ (Portugal) • Compulsory supplementary pensions (Netherlands, Switzerland) • Auto-enrolment (UK) • Tax incentives for increased pension savings (UK)

  12. Smart pension funds • Smart institutions: large scale, collective institutions lower costs and improve outcomes • Smart DC default funds: target-date funds with investment strategy related to the age of participant • Smart choices: less is better as many people may make the wrong investment choices

  13. Investment trends • Persistent low interest rates affect DB pensions • Increased focus in (domestic) investments in infrastructure, SMEs and technology • EU Green Paper The Long-Term Financing of the European Economy (2013) • The UK Review of Equity Markets by Professor John Kay • Strong focus on effective structures, governance and decision making

  14. Thank you!

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