EU Pension Trends
Matti Leppälä, Secretary General / CEO
PensionsEurope
16 October 2014
Rovinj, Croatia
1
Lähde: World Bank
2
Pension debt big
(implicit debt, % of GDP, 2006)
Source:Müller, Raffelhüschen and Weddige (2009)
Source: Eurostat (online data code: tsdde410)
Iceland
Norway
Greece
Italy
Belgium
Portugal
Ireland
Germany
France
Hungary
EU-27
2000
United Kingdom
Austria
Malta
Netherlands
Cyprus
Spain
Poland
Finland
Latvia
Denmark
Slovakia
Sweden
Slovenia
Lithuania
Czech Republic
Romania
Luxembourg
Bulgaria
Estonia
EU-27
Public debt big and growing
(explicit debt)
General government debt, by country
% of GDP (at current prices)
EU-27
2010
The impacts on public pensions
Public spending in pension as a percentage of GDP in 2010 and projection to 2060
Member States
Austria
Spending 2010
12.8
Spending 2060
13.6
Belgium
10
14.7
Denmark
9.1
9.2
Germany
10.4
12.8
Greece
11.7
24.1
Spain
8.4
15.1
France
13
14
Ireland
4
8.6
Italy
14
13.6
Luxembourg
8.7
23.9
The Netherlands
6.6
10.5
Portugal
11.4
13.4
Finland
10
13.4
Sweden
9.5
9.4
The UK
6.6
9.3
EU 15
10.2
12.6
Source: European Commission
5
Pay as you go not sustainable
•
Important to start promoting complementary funded pension system; “pay as you
go” system alone is not enough.
•
“Complementary retirement savings can also help secure adequate replacement rates
in the future. Some Member States have introduced pension funds to complement their
public pay-as-you-go pension schemes with private funded schemes, but there is much
scope for further development of complementary pension savings opportunities in many
Member States.” – White paper on adequate, safe and sustainable pensions,
European Commission, 2012.
6
Consequences
Reduction first pillar pensions till 2060 (compared to 2010)
•
UK
Cyprus
Hungary
Ireland
Denmark
Czech Republic
Lithuania
Bulgaria
France
Portugal
Malta
Germany
Italy
Finland
Estonia
EU-27
Austria
Spain
Luxemburg
Sweden
Slovakia
Greece
Poland
•
•
-60
-50
-40
-30
-20
-10
0
10
20
30
Old age dependency will roughly
double
In 2010 there were 4 people of
working age for each person 65
years or older, in 2060 there will
only be 2
Replacement rates will decrease
when not reforming the pension
system
40
%
Source: European Commission (2012)
7
European Pensions Landscape
• Large public pensions, less funding
• France, Spain and Greece
• Reforms of 1st pillar into NDC (mandatory)
• Hungary, Poland and Sweden
• Some shift from public to private pensions (voluntary)
• Germany, Italy and Belgium
• Already developed 2nd pillar, a lot of pension savings
• Netherlands, Denmark, Ireland, Switzerland and UK
Pension funds in relation to the economy
As % of the GDP
Source: OECD Pension Markets in Focus 2013
140
Assets Pension Funds (%
GDP)
Greece
Net Replacement Rate Public
Pension (Median Earner)
Luxembourg
160
Spain
Austria
Italy
Slovenia
Finland
Portugal
Czech Republic
France
120
Norway
Hungary
Belgium
Germany
Sweden
Switzerland
United Kingdom
Netherlands
Ireland
Denmark
Poland
Slovak Republic
Estonia
Iceland
Link between 1st pillar pensions and pension
savings 2nd pillar
100
80
60
40
20
0
10
Pension trends across Europe
• Increase in number of DC schemes
• More focus on risk management, governance and disclosure
• Central issues (both DB and DC): how to deal with volatile financial
markets
• Reverse developments in some CEEC Countries (Poland, Czech Republic,
Hungary)
Developing pension fund governance to secure future retirement income in Europe
DB Plans in Europe: characteristics &
trends

Characteristics:
• Collectivity & Risk sharing
• Wide diversity of risk mitigating instruments and character of
pension benefit across Member states

DB under pressure:
• Increasing longevity
• Financial crisis – low interest rate environment
• Regulatory framework

Trends:
• Reinventing DB
• From hard and fast guarantees to more conditional benefits
1
2
Growing importance of DC
– Growing importance at both international and European level:
• DC pension funds assets in OECD countries increased from 30.3% to 35%
between 2001 and 2011(OECD)
– DC schemes are dominating in Cnentral and Eastern European
Countries:
– DB still dominate in countries with large occupational pension
sector (UK, NL). However, there is a shift away from DB:
• In UK for instance, only 16% of DB schemes are completely open
compared to 31% in 2008.
Relative share of DB and DC pension funds assets
(2011)
14
Shift DB to DC
Pure DB
Risk
employer
DB contribution based
Various hybrids
DC with guarantees
Pure DC
Risk employee
15
Developing pension fund governance to secure future retirement income in Europe
1
6
DC Plans in Europe: characteristics
& trends

Wide diversity of DC plans:
•
•
•
•
•


Coverage
Level of contribution
Pension provider (pension funds, insurers, investment funds)
Investment choice (one or more options)
Risk-reduction mechanisms (life-cycling, guaranteed returns,
intergenerational risk-sharing)
Increasing shift DB/DC (UK,IE, Multinationals)
Role of auto-enrolment and good defaults
Different reasons for shiting to DC
– Globalisation
• Difficult for companies to raise contributions, hence labour costs to
recover funding short-falls in DB plans.
– Ageing population
• Contribution bases have started to diminish as the number of working
people is decreasing relative to the number of pensioners.
– Regulatory framework
• DC relieves companies from having to account for volatile changes in
pension.
17
Prerequisites for a good pension system
• Prerequisites for all pension systems: “Effective central
government, fiscal stability, economic growth, wellestablished financial markets, and adequate public and
government understanding of and trust in them” (Barr 2002)
• “There can be no sound development of funded pensions
without real economic growth “(Holzman 2012).
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CONTACTS
Matti Leppälä, Secretary General/CEO
PensionsEurope
Koningsstraat 97 Rue Royale
1000 Brussels
Tel.: +32 2 289 14 14
Fax: +32 2 289 14 15
www.pensionseurope.eu