 European Governments will take ‘Aggressive Action’ to tackle retirement savings gap, according to research from State Street Corporation.
According to a survey commissioned by State Street (NYSE: STT) and conducted by the Economist Intelligence Unit, nearly seven out of 10 pension schemes (69 per cent) across Europe expect governments will take “aggressive action” to close the retirement savings gap in the next five years.
Such measures would include compulsory (or opt-out rather than opt-in) saving mechanisms such as the UK’s auto-enrolment and new financial incentives to save. Pension schemes are feeling optimistic with nearly eight out of 10 (77 per cent) believing that contribution rates will increase over the next five years.
State Street also commissioned Clear Path Analysis to carry out qualitative research into the future of pensions. Speaking at one of the panel debates, Raymond Haines, head of European strategy and research, Investment Solutions Group at State Street Global Advisors, said, “The whole issue of funding will affect strategy. Contributions will have to increase to fill the gap, returns will have to improve or benefits will have to fall and there are not any other possibilities.”
“I feel that people are still looking for improvements in returns to fill gaps when for the past ten years this approach hasn’t worked,” Haines continued.
The EIU survey findings, which surveyed 150 European pension schemes, mirror this sentiment. Closures of defined benefit (DB) schemes are expected to gather momentum over the next five years, with 75 per cent of respondents predicting that ‘persistent funding challenges’ will accelerate DB schemes’ demise and accelerate the transition to defined contribution (DC) schemes. Schemes believe, however, that funding levels overall will improve, with 62 per cent expressing optimism in this regard.
“It’s clear that across Europe there is a strong belief that change is gathering pace in the pensions industry, and there will be plenty of innovation to come. There is recognition that governments are going to have to become more involved,” added Haines.
Other key findings from the EIU research include:
♦ 88 per cent of respondents say, and nearly four fifths (79 per cent) of schemes predict transparency will improve and enable investors to make more informed decisions.
♦ 68 per cent of schemes believe that investment decisions will become more complex
♦ 65 per cent of respondents feel their data enables them to fulfil their regulatory requirements
♦ Less than half (42 per cent) feel that their data gives them a good understanding of their total investment costs.
The State Street 2012 European Pension Study was conducted by the Economist Intelligence Unit during October 2012. Responses were received from DB and DC schemes in Germany, Italy, Netherlands, Switzerland, UK and the Nordics. The Clear Path Analysis roundtables took place between October and December 2012.
The free report can be downloaded here
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