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Europe’s Pension Challenges

Europe’s Pension Challenges. Liam Kennedy Editorial Director, Investment & Pensions Europe AMAC, Beijing, 16 June 2014. Melbourne-Mercer Pension Scores. Increases in the median age. Source: NAPF, OECD. A reduction in ratio of working population per person 65+. Source: NAPF, OECD.

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Europe’s Pension Challenges

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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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