Europe’s Pension Challenges

Liam KennedyEditorial Director, Investment & Pensions Europe

AMAC, Beijing, 16 June 2014

Melbourne-Mercer Pension Scores

Country Score Ranking

Denmark 80.2 1

Netherlands 78.3 2

Australia 77.8 3

Switzerland 73.9 4

Sweden 72.6 5

Canada 67.9 6

Singapore 66.5 7

Chile 66.4 8

United Kingdom 65.4 9

Germany 58.5 10

USA 58.2 11

Poland 57.9 12

Increases in the median age

Source: NAPF, OECD

A reduction in ratio of working population per person 65+

Source: NAPF, OECD

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)

Positives and negatives

• Germany is reducing the retirement age for some workers. Strong criticism from European Commission

• Reforms of defined benefit pensions in the Netherlands

• AV2020 reform programme in Switzerland• Auto-enrolment programme and flat rate

national retirement pension in the UK

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

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

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

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

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)

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

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

Thank you!