SlideShare a Scribd company logo
1 of 134
Download to read offline
International Pension Studies


Funded Pensions
in Western Europe 2008
Imprint
Publisher: Allianz Global Investors AG, Seidlstraße 24-24a, D-80335 Munich | http://www.allianzglobalinvestors.com | Editor: Dr. Alexander Börsch,
Senior Pensions Analyst, Allianz Global Investors AG, E-mail: alexander.boersch@allianzgi.com, Phone: +49 (0) 89 1220 7472 | Contributors: Dr. Alexander Börsch,
Allianz Global Investors AG; Dr. Renate Finke, Allianz Dresdner Economic Research; Dr. Martin Gasche, Allianz Dresdner Economic Research; Jordy Peek, risklab;
Dr. Jürgen Stanowsky, Allianz Dresdner Economic Research | Layout: volkart:51 GmbH, Munich | Printing: repromüller, Übersee | Closing date: December 5, 2008 |
This study was conducted in cooperation with Allianz Dresdner Economic Research. The OECD provided information on the second and third pillars.



The entire content of this publication is protected by copyright with all rights reserved to Allianz Global Investors AG. Any copying, modifying, distributing
or other use of the content for any purpose without the prior written consent of Allianz Global Investors AG is prohibited. The information contained in this
publication has been carefully verified by the time of release, however Allianz Global Investors AG does not warrant the accuracy, reliability or completeness
of any information contained in this publication. Neither Allianz Global Investors AG nor its employees and deputies will take legal responsibility for any
errors or omissions therein.
This publication is intended for general information purposes only. None of the information should be interpreted as a solicitation, offer or recommendation
of any kind. Certain of the statements contained herein may be statements of future expectations and involve known and unknown risks and uncertainties
which may cause actual results, performance or events to differ materially from those expressed or implied in such statements.


2
International Pension Studies Western Europe




     Preface




T    raditionally, the pension systems of most
     Western European countries were text-
book examples for the dominance of public
                                                    the financial assets of European households
                                                    in international comparison and includes
                                                    forecasts on the future development of finan-
pay-as-you-go pensions. This has changed.           cial assets. The third article addresses trends
More and more European countries are try-           in Western European pension markets and
ing to spread the retirement income of their        pension asset projections, while the conclud-
citizens across a wider base. They have intro-      ing article of the first part is concerned with
duced new funded occupational and private           the effects of a possible application of Solven-
pension schemes with the goal to diversify          cy II on defined benefit pension funds. The
retirement income for future pensioners.            second part analyses the pension systems in
                                                    each Western European country; for the pur-
   Despite different starting points, almost        poses of this study we defined Western Europe
all Western European countries have fol-            as the EU-15 plus Switzerland and Norway.
lowed the trend towards funded pensions.
This has taken several forms. Besides the in-          The evolution of funded pensions into
troduction of new schemes, many countries           a crucial element of retirement income in
decided to introduce state pension reserve          Western Europe has important ramifications
funds to back public pension systems and            for public policy and the financial industry.
strengthen their sustainability. These funds        For example, the regulation of funded pen-
have grown considerably and are now crucial         sions, the effectiveness of plan design, the
players in the financial markets. The world-        risk management of investments and the
wide shift from defined benefit to defined          quality of financial products become ques-
contribution plans in occupational pension          tions that will shape the financial security
provision is also taking place in Europe, how-      of many future retirees. By creating trans-
ever, with a different speed and depth in the       parency about the pension system designs
respective countries.                               in Western Europe, this study aims to con-
                                                    tribute to the discussion on the future of
   This study is divided into two main parts.       European pensions. We strongly believe
The first part is comprised of four articles, in-   that transparency and comparability are
cluding one on the economic impact of ageing        the foundations for mutual learning and
populations. The second article focuses on          best practice sharing.

                                                    Brigitte Miksa,
                                                    Head of International Pensions
                                                    Allianz Global Investors AG




                                                                                                                                  3
International Pension Studies Western Europe




    Content
    Imprint  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 2
    Preface  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 3

    Introduction  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 5
       Western Europe – The Economic Impact of Ageing Populations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6
       The Financial Assets of Private Households – An International Comparison  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
       Trends and Asset Development in European Pension Markets  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21
       Solvency II: How it Could Affect Defined Benefit Pension Funds  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 31

    Country Profiles  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
      Austria  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 38
      Belgium  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44
      Denmark  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
      Finland  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 54
      France  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 59
      Germany  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 65
      Greece  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 71
      Ireland  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 75
      Italy  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 81
      Luxembourg  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 87
      The Netherlands  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 91
      Norway  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 96
      Portugal  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 101
      Spain  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 106
      Sweden  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 111
      Switzerland  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 117
      UK  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 122

    Appendix  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .129
      References  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 130
      Data  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 133


4
Introduction
Introduction                                                                           International Pension Studies Western Europe




Western Europe –
The Economic Impact
of Ageing Populations

Demographic development                            Chart 1 Western European population [million]
in Europe                                          415

While Western European countries vary con-         410
siderably from one another, they also have
a number of commonalities. For instance,           405
in most of Western Europe, the population
                                                   400
is expected to stop growing within the next
twenty years. It will not be the first time that   395
European societies see a decline in their pop-
ulations. The Black Death and both World           390

Wars are two dramatic examples. Indeed, in
                                                   385
the past, wars and pandemics led to quickly
                                                      2005 2009 2013 2017 2021 2025 2029 2033 2037 2041 2045 2049
shrinking populations.
                                                                                                                   Source: Eurostat

   In the coming decades, the decline in
Western Europe’s population will certainly be      at the big picture to make rough estimates of
more gradual. Overall population will peak in      future GDP growth within a growth account-
20 years. It will then start to decrease, slowly   ing framework. Finally, we assess the impact
at first and then increasingly faster. The age-    of ageing on the Western European pension
ing process of Europe’s populations will have      business.
a significant impact on the makeup of its so-
cieties. The proportion of elderly people (i.e.
                                                   Longer lives, fewer children
people aged 65 and over) in the total popula-
tion will increase from about 17% today to 30%     Across Western Europe, the basic demograph-
in 2050. In this publication, we have defined      ic trends of ageing and shrinking populations
Western Europe as the former EU-15 coun-           are to blame for many political reforms that
tries, plus Norway and Switzerland.                have seen benefits cut – particularly pension
                                                   benefits – and extended working lives. The un-
   The present article examines the impact         derlying causes of low or falling fertility and
of ageing and declining populations on GDP         increasing life expectancy are well known.
growth. We discuss how the shrinking labour        However, the reasons and mechanisms be-
force has a negative effect on growth prospects    hind these factors are not as well understood.
and also address the impact of ageing. First,      A number of questions need to be answered,
we look at the impact of population decline on     among them why women do not have more
the labour market. Next, we discuss the quali-     children and what can be done to increase
ty of labour, the role of education, and the im-   fertility. Other open questions include how
pact of ageing on productivity. Third, we look     fast life expectancy will increase, or whether
at whether capital input can offset shrinking      it will decrease due to less healthy lifestyles.
labour input and shed some light on the ques-
tion of how ageing affects an economy’s ability      Since there are many possible answers to
to innovate. Once we have done this, we look       these questions, it has thus far been impos-

6
Introduction                                                                                 International Pension Studies Western Europe




sible to make any sound scientific conclu-          Can ageing societies remain
sions. Population development forecasts
must therefore rely on assumptions about            competitive?
future developments.1 For the EU-15 coun-           To answer this question, the effects of ageing              1 We have used Eurostat
tries, fertility is expected to increase slightly   on the economy and its growth prospects must                figures for all countries
except in France and Ireland, where current         be examined. The following paragraphs shed                  except Norway and
high fertility levels are forecast to decrease.     some light on this issue. We will identify the              Switzerland. For each of
Given the lack of scientific evidence on the        relationship between demographic change                     these two countries, we
drivers of change in fertility in industrialised    and economic growth and discuss its poten-                  have used the figures
countries, it is possible that actual develop-      tial impact on Western Europe.                              and forecasts of national
ments will deviate from these assumptions.                                                                      statistical offices.
                                                       Demographic development affects eco-
   Even if fertility in France keeps rising as      nomic activity in many areas. Gross domes-
it has in recent years and current low levels       tic product (GDP), i.e. the sum of all goods
remain constant in other countries, the im-         and services produced within a given period,
pact would barely be noticeable in the near         is the result of an application of capital and
future. Indeed, it will take many years for         labour combined with the effects of techni-
such small developments to alter the age            cal progress. Clearly, labour force develop-
composition of populations. After several           ment has an influence on output. It should
decades of low fertility, the number of poten-      be noted, however, that not only the number
tial mothers has significantly decreased,
so that an increase in fertility will not have
                                                    Chart 2 Fertility rates in Western Europe [children per woman]
a noticeable impact in the short term.
                                                    2.5
    A similar argument can be made about                                                                                              1990
life expectancy. An increase has been fore-
                                                     2                                                                                2006
cast for all countries in our sample, though
it will be higher in some than in others. The
highest life expectancy increase for men be-        1.5
tween 2006 and 2050 will presumably occur
in Austria, with 7.2 years. For women, life ex-
                                                     1
pectancy will increase the most in Belgium,
by 6.4 years. We have assumed the lowest
increase in the Netherlands, with 3.8 years         0.5

for men and 2.7 years for women. Current
national assumptions may deviate from the            0
estimates used by Eurostat. However, even                 Germany   Italy   France   Spain     UK    The Nether- Sweden    Switzer-
                                                                                                        lands               land
if deviating national assumptions were used,
changes to the overall picture would be
negligible.                                         Chart 3: Old-age dependency ratios [65+-year-olds/15–64-year-olds]

                                                    70
   The continuous ageing of societies is one                                                                                      2008
of the consequences of these developments,          60
                                                                                                                                  2050
and is reflected in the old age dependency
                                                    50
ratio. It depicts the number of people aged
65 and older per 100 people of working age
                                                    40
(15–64 years) and demonstrates that the
ageing process varies in different Western          30
European countries. For instance, Spain, Italy
and Germany are much more affected than             20
countries like the UK, France or Sweden.
                                                    10

                                                     0
                                                          Germany   Italy   France   Spain     UK    The Nether- Sweden    Switzer-     Western
                                                                                                        lands               land        Europe

                                                                                                                           Source: Eurostat



                                                                                                                                             7
Introduction                                                                          International Pension Studies Western Europe




of workers matter, but also their quality.        of the 15-64 age group will differ considera-
Education, i.e. the quality of human capital,     bly across Europe. Germany and Italy will see
is an important determinant of productivity.      the sharpest declines. Labour force potential
                                                  in these two countries will shrink by 25% by
   Since population development and the           2050. In contrast, Ireland will see an increase
age structure of a population affect the use      of 15%, the increase in Luxembourg will be
and quality of production factors in a number     almost 30%, and Sweden’s labour force po-
of ways, the impact of demographic change on      tential will grow by 3%. All other countries
output is difficult to determine. Some simple     will have to cope with a declining potential
economic models describe these relation-          labour force.
ships. In this basic accounting exercise, GDP
is the product of the number of employed             A decline in the potential labour force
persons (working population) times the            does not mean that the size of the labour
output in goods and services per employed         force automatically shrinks. This is because
person (labour productivity):                     many people aged 15-64 are not active in
                                                  the labour market. A substantial number of
                                                  people are pursuing their education, some
                     GDP =
                                                  have retired early and others are currently at
    labour productivity x working population
                                                  home to raise children or for other reasons.
                                                  In 2007, the labour force participation rate
  The working population is a subset of the       (i.e. people aged 15-64 who were either em-
people aged 15-64 who could potentially work      ployed or looking for a job) stood at 74% for
(potential labour force) and do participate in    men and almost 60% for women. The figures
the labour market.                                for Norway and Switzerland are well above
                                                  the EU-15 average.

              Working population =
                                                     These participation rates can change for
    participation rate x potential labour force
                                                  a number of reasons. Developments in the
                                                  economic cycle are an important influence,
    This leaves us with:                          but changes in the legal environment also play
                                                  a role. Since 1995, the labour force participa-
                                                  tion rate in the EU-15 has increased by 3.5
           GDP = labour productivity x
                                                  percentage points for men and 10 percentage
    participation rate x potential labour force
                                                  points for women. Legislation to increase

   Labour productivity depends on the avail-
ability of capital (i.e. tools and machinery),    Chart 4 Development of the working age population aged 15–64
the quality of human capital and technologi-              [2005=100]
cal progress. All of these items are influenced
                                                  105
by demographic development – some more
directly than others. Let us begin our analysis
                                                  100
with the most obvious variable, the potential
labour force.
                                                   95
                                                              Germany
                                                              Italy
Demographic impact                                 90
                                                              France

on the labour market                               85
                                                              Spain
                                                              UK
                                                              The Netherlands
How do demographics affect the labour              80
                                                              Sweden
market? If we assume that the potential
                                                              Switzerland
labour force comprises all people between          75         Western Europe
15 and 64 years of age, we will see some
changes throughout Western Europe.                 70
According to current population forecasts,          2005 2009 2013 2017 2021 2025 2029 2033 2037 2041 2045                       2049
labour force potential will decline by 15%
                                                                                          Source: Eurostat, national statistical offices
between 2008 and 2050. The development

8
Introduction                                                                                                                International Pension Studies Western Europe




Chart 5 Labour force participation rates of 55–64-year-olds, 2007 [%]

                                                                                                                                                         men 55–64
90
                                                                                                                                                         women 55–64

80

70

60

50

40

30

20

10

 0
       EU-15             Denmark             Ireland            Spain            Italy         The Netherlands        Portugal             Sweden        Norway
               Belgium             Germany             Greece           France           Luxembourg         Austria              Finland            UK            Switzerland


                                                                                                                                                            Source: Eurostat



retirement ages and an improved economy                                  policies can certainly alleviate its most
have contributed to that development.                                    dramatic effects.
This demonstrates that a declining potential
labour force does not automatically mean                                    For instance, extending working life and
that fewer people are available on the labour                            closing loopholes that lead to early retire-
market. Participation rates could increase,                              ment are two possible measures that could
just as unemployment could decrease.                                     be implemented to protect the labour mar-
                                                                         ket from a declining population. Another is
   About 13 million EU-15 citizens are current-                          increasing the willingness to join the work-
ly unemployed, which represents the entire                               force by offering childcare facilities for young
combined potential labour force of Belgium                               parents and/or more flexible working hours.
and Greece. With unemployment rates be-                                  Taxes play an important role, too. If taxes
tween 2.5% and 4%, Norway and Switzerland                                on a couple’s secondary income are too high,
have reached almost full employment. Given                               the incentive to work is low, as experience in
the high participation rates in these two coun-                          the Netherlands has shown.
tries, changes in the potential labour force will
have a more direct impact on the availability                               Even if the total number of workers does
of labour. In other EU-15 countries, there is still                      not drop by as much as some may fear, there
some room to manoeuvre. For instance, la-                                is no denying that the workforce is ageing.
bour force participation rates for those aged                            In Western Europe, the current median age
55 to 64 can increase substantially in most                              is about 40 years; it is expected to increase
EU countries. Currently, only Sweden comes                               by roughly 7 years by 2050, as will the medi-
close to Switzerland and Norway.                                         an age of the labour force. Until now, there
                                                                         has not been any empirical evidence on how
    If it were possible to increase labour force                         such a process will affect productivity.
participation across EU-15 states to rates as
high as Sweden’s, the demographic impact on
                                                                         The role of education
the labour market could be cushioned con-
siderably. In fact, the expected labour force                            As already mentioned, the quality of the
decline of 15% could be reduced by half. Even                            labour force plays an important role – espe-
if some aspects of demographic development                               cially in countries with decreasing popula-
cannot be changed in the short term, smart                               tions. In Western Europe, Germany and Italy

                                                                                                                                                                                9
Introduction                                                                             International Pension Studies Western Europe




in particular must cope with pronounced pop-          To assess the development of productivity
ulation decline. In these countries, and also in   in an economy, the weight of different jobs
Portugal, Greece and Spain, efforts must be        in the overall workforce is important. Mental
made in the realm of education to counter          abilities, such as problem-solving skills when
the effects of ageing and population decline.      faced with new challenges, logic and the
The decline in the absolute number of po-          ability to understand complex topics, seem
tential workers must be countered by an in-        to decrease with age. Verbal abilities and
crease in the productivity of each individual.     communication skills, on the other hand,
                                                   tend to improve with age, as experience plays
   To achieve this, national school systems are    a more important role. The importance of
one of many factors that must be examined.         different combinations of these abilities vary,
Certainly, reducing the number of school           depending on the industry. For older em-
dropouts is critical. However, the education       ployees, changes that are the result of rapid
of the workforce as a whole must also be           technological development pose a particular
considered. Lifelong learning should not           challenge with regard to productivity, as they
only be a catch phrase, it must become an          make experience acquired over decades
embedded concept in companies’ personnel           irrelevant. For this reason, industries that
departments. Giving the increase in retire-        are characterized by such change will suffer
ment age, workers aged 55 and over will have       more from an ageing workforce than others.
to spend a decade or more in employment
before they can access their pensions. Hence,         There are very few empirical studies that
even for these experienced workers, continu-       demonstrate these dynamics, and those that
ing education will become increasingly com-        are currently available do not provide clear
mon. The depreciation of human capital in          answers to the critical questions. Most stud-
a shrinking labour force must be prevented         ies conclude that productivity declines with
(Ludwig, Schelkle, 2007).                          age. However, it is unclear at what age the de-
                                                   cline sets in and whether it is significant. This
Age and productivity                               leaves us with the following results: While a
                                                   decline in productivity due to ageing is pos-
The development of labour productivity is          sible, it appears that it will not be substantial.
extremely important for an economy’s long-         We must also consider the possibility that the
term growth prospects. Ageing populations          deterioration of productivity can be countered
and workforces require that answers be             by further education and training. There is
found to the question of how productivity          ample evidence that employees can acquire
is affected by ageing. In rapidly ageing coun-     new skills at any age. If companies keep this
tries like Germany and Italy, this question        in mind, they may be able to maintain pro-
is high on the agenda. The fact that certain       ductivity despite ageing societies. This is par-
mental abilities decrease after early adult-       ticularly true in sectors where experience is
hood is one of several aspects that are un-        important.
disputed.

   However, this does not mean that produc-        Demography and the use
tivity decreases as workers age. Experience,       of capital
which increases with age, is also important.
A good balance between mental ability and          When the supply of labour declines for demo-
experience leads to the best results. If we look   graphic reasons, the importance of capital in
at purely physical work, the picture is slightly   maintaining economic performance grows.
different, as productivity undoubtedly decreas-    Capital must be used to substitute labour
es with age. In Western Europe, however, ever      and increase the productivity of the remain-
fewer jobs rely exclusively on physical abili-     ing jobs. In other words, investment in real
ties. Even in the automotive industry, it has      capital will gain importance. In ageing West-
not been proven that younger assembly line         ern Europe, capital investment is influenced
teams are more productive than their older         by the need to substitute labour, which will
counterparts. While younger teams tend to          become more expensive. Production will be-
be faster, they also make more mistakes.           come even more capital intensive. The neces-
                                                   sary increases in productivity will be achieved

10
Introduction                                                                                       International Pension Studies Western Europe




by investing more in human and physical cap-         the propensity to innovate seems to in-
ital – increasing capital demand even more.          crease until age 40 a positive correlation
                                                     between age and innovations can be found
                                                     in younger populations. Chart 6 shows that
Demography and techno­                               such a relationship is not contradicted by
logical progress                                     the data, even though it does not prove it. At
                                                     least an increase in the share of elderly, here
Technological progress is an important factor        the number of people aged 45 to 64, corre-
for economic growth. It results in new products      lates positively with the number of patents.
or new, more efficient ways of producing exist-
ing products. Innovations are frequently the
                                                     Ageing and economic growth
result of technological progress. For Western
European economies, which trade a great deal         Having addressed all of these considerations
with the rest of the world (and of course with       regarding future labour force development,
each other), technological progress is one of        productivity and technological progress, we
the pillars of growth. Western Europe can only       can now have a closer look at Western Europe’s
successfully compete on global markets with          growth prospects. The frame of reference for
very advanced products. If ageing were to in-        this task is the simple growth accounting
terfere with countries’ ability to innovate, their   framework introduced above. GDP growth
international competitiveness would face             can be broken down into productivity growth
a direct threat. Countries such as Germany,          and employment growth. The latter depends
which is a very strong exporter of highly so-        on the growth of the working age population
phisticated machinery and cars, would suf-           and changes in labour utilization (i.e. labour
fer if it could not maintain its competitive         force participation). For example, the Euro-
advantage over foreign competitors. Assess-          pean Commission and the European Central
ing the effect of ageing on technological            Bank (ECB) conducted this exercise, and the
progress is therefore critical.                      result of our own research is in line with their
                                                     findings. It is very likely that GDP per capita
   It is a commonly held thought that a soci-        growth will decline over the next four decades.
ety’s ability to innovate suffers when it ages.      However, this decline will not be dramatic
This rests on the assumption that creativity         (Table 1).
decreases with age. In fact, recent empirical
research has shown that age tends to correlate
negatively with the propensity to innovate           Chart 6 Share of people aged 45–64 and number of patents
(Schneider, Ragnitz, 2007). The likelihood of                per 1 million inhabitants in the US
a successful innovation (new product, major
process or product improvement) peaks at an          350                                                                                     0.26
average age close to 40. Afterwards, the likeli-
hood begins to decrease, dropping to lower                                                                                                   0.24

than at the age of 30 when the average age of        300
                                                                                                                                             0.22
personnel is over 48. Hence, there is quite a                                       Share of people aged 45-64,
long time span with fairly high innovation po-                                      right scale [%]
                                                                                                                                             0.20
tential. What is more, empirical results sug-        250
gest that a good balance of older and younger                                                                                                0.18
employees must be reached to achieve high
innovation potential.                                200
                                                                                                                                             0.16
                                                                                                               Number of patents per
   US data on patent activity shows a rather                                                                   1 million inhabitants,        0.14
                                                                                                               left scale
positive correlation between age and innova-         150
tions. This means that even if age affects the                                                                                               0.12
likelihood to innovate negatively, this seems
to take effect only at higher ages – at least com-   100                                                                                     0.10

pared to the average age of the workforce.                 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

Given the projected increase in the age of the          Note: Patents are defined as Utility Patents granted to US inhabitants
workforces in Western Europe, a strong neg-
                                                                                       Source: US Census Bureau, US Patent and Trademark Office
ative impact is unlikely to materialise. Since

                                                                                                                                              11
Introduction                                                                                                     International Pension Studies Western Europe




Table 1 Economic growth scenarios for Western Europe [average annual changes in %]

                         Labour                 Change in              Working age           Total                                        GDP
                                                                                                                     Real GDP
                         productivity           labour force           population            population                                   per capita

 Past: average
                               1 .1                   0 .8                   0 .4                  0 .5                    2 .3                 1 .8
 1995–2005


 Base case

 2011–2030                     1.7                    0.4                   -0.3                   0.1                     1.8                  1.7

 2031–2050                     1.5                    0.2                   -0.5                  -0.2                     1.2                  1.4

 Pessimistic
 assumptions

 2011–2030                     1 .2                   0 .1                  ­0 .3                  0 .1                    1 .0                 0 .9

 2031–2050                     1 .1                   0 .0                  ­0 .5                  ­0 .2                   0 .6                 0 .8

 EU commission
 assumptions

 2011–2030                     1 .8                   0 .2                  ­0 .3                  0 .1                    1 .7                 1 .6

 2031–2050                     1 .7                   0 .1                  ­0 .5                  ­0 .2                   1 .3                 1 .5



Notes: Western Europe = EU 15, labour force participation: share of employed persons of working age population

                                                                                               Source: ECB, Eurostat, European Commission, own calculations



The scenarios have two main results:                                EU policies currently aim to achieve pre-
•	 As	the	table	shows,	growth	will	be	affected	                  cisely these goals, as summarised in the Lis-
   dramatically only under very pessimistic                      bon agenda. Norway and Switzerland have
   assumptions. In our base case scenario,                       similar goals with respect to growth. Indeed,
   which is slightly less optimistic than the                    policies across Western Europe are geared
   European Commission with regard to                            towards increasing labour force participa-
   productivity developments, but more op-                       tion with higher retirement ages or better
   timistic on labour force participation, in                    childcare facilities. They also aim to increase
   the medium term GDP per capita growth                         labour productivity with efforts to raise edu-
   will remain roughly at the level seen in the                  cational standards and foster research and
   last decade. Towards the end of the fore-                     development. While progress towards reach-
   cast period, growth will slow down as the                     ing these targets has not been consistent
   change in the working age population                          in all countries, we expect all of Western
   becomes more pronounced.                                      Europe to make substantial progress within
                                                                 the next decades. Although Europe is ageing,
•	 The	table	also	demonstrates	the	impor-                        it will remain an economic force to reckon
   tance of maintaining high labour produc-                      with in the future.
   tivity. If the increase were to fall below the
   past average of one percent, GDP growth
   would be severely impeded. In fact, GDP                       Consequences for pensions
   growth above one percent would be diffi-                      and pension investments
   cult to obtain. An increase in labour force
   participation is another important pre-                       What does all of this mean for pensions?
   condition for economic growth to stay at                      First, the prospect of decent economic
   levels close to those reached in the past.                    growth rates means that there is no need

12
Introduction                                                                        International Pension Studies Western Europe




to fear the future. The consequences of          rule out some major European countries such
ageing can be dealt with. Second, public,        as Italy, Spain, and Germany, among many
pay-as-you-go financed pension systems           others. However, as the above analysis has
will encounter difficulties as a result of the   shown, an ageing society does not necessarily
changing ratio of people over 65 to the 15-64    face a bleak future.
age group, which finances pensions. This
ratio, which is commonly referred to as the         The move towards a pension system
old age dependency ratio, will increase from     that is funded to a much higher degree than
27 today to 52 in 2050.                          past systems can be seen as a reaction to the
                                                 changing needs of an ageing society. To suc-
   This means that in the future, there will     cessfully offset the decline in labour through
be 52 elderly people for every 100 people of     investments in physical and human capital,
working age, compared with 27 today. Still,      an economy needs a great deal of capital.
the outlook for public pensions would be         Across Western Europe, the need to adapt
much worse if ageing automatically meant         to demographic change varies significantly.
economic decline. This is not the case, as in-   The situations in Sweden, France and the UK
comes are expected to keep growing. Wages,       differ considerably from Germany or Italy.
which finance public pensions, will not be       The need for reform is highest in the coun-
affected that much by ageing. However, age-      tries that are ageing the most quickly and
ing will have a large impact on the viability    have not yet sufficiently reacted by adapting
of public pension systems.                       their pension systems and economies to
                                                 the demographic conditions they will face
   The most common reaction to this fore-        in the future.
seeable development continues to be de-
creasing the generosity of public pension           From an investment point of view, even
systems and strengthening private pension        an ageing Western Europe seems like a
provision. The latter is usually of a funded     promising place to invest. The demand for
type. People save money while working and        capital to finance the investments required
receive the proceeds of their savings after      to offset the decline in labour will grow. In
retirement. While this arrangement exposes       some countries, notably Germany, this proc-
them to investment risk, pension asset man-      ess has already begun or will start sometime
agers do their best to keep this risk manage-    soon. In the end, return on investment and
able. They must continuously ask themselves      the associated risks determine whether or
where the best possible investment can be        not an investment is appropriate. Even if
made. If ageing societies were doomed to         higher returns can be expected in emerging
slow growth, stagnation or eventual decline,     economies, these also entail higher risk.
the only answer would be in young and/or         Among others, exchange rates and political
fast growing economies. This concept would       risks should be considered.



                                                 Dr. Jürgen Stanowsky,
                                                 Allianz Dresdner Economic Research




                                                                                                                             13
Introduction                                                                             International Pension Studies Western Europe




The Financial Assets of
Private Households –
An International Comparison

Introduction                                       above the level Japanese households had put
                                                   aside (EUR 9.7 trillion). However, because of
Over the past decade, Europe has seen many         the difference in size of the regions, an anal-
pension reforms that have paved the way for        ysis of the absolute values does not correctly
a shift from pay-as-you-go to funded pension       reflect the ratios. Taking financial assets as a
systems. These reforms have led to a strength-     percentage of gross domestic product (GDP),
ening of the second pension pillar in most         we find that wealth in Western Europe, which
countries and highlighted the importance           amounts to about 220% of GDP, is significant-
of third pillar provision, as replacement          ly lower than in the other two regions. In 2007,
levels in the first pillar have been cut back.     the United States’ monetary wealth of private
Especially in Continental Europe and EMU           households was 328% of the country’s GDP.
(European Monetary Union) countries, the           In Japan, it stood at 310%. In contrast, Eastern
introduction of tax-favoured savings prod-         Europe lagged way behind, reaching only
ucts for retirement has triggered a build-up       73% of GDP.
process in this segment.
                                                      The new members of the EU in Central
   The increasing importance of the pension        and Eastern Europe (CEE) showed the most
segment is reflected in the financial assets       dynamic development among the regions in
of private households. In many countries, the      review. Over the past five years, they have seen            1 Former EU member
proportion of pension products has increased       annual growth rates of almost 15%. Western                  states plus Norway and
in private household portfolios in recent years.   Europe recorded annual growth rates of 7.2%                 Switzerland, not including
To a large extent, the differently structured      on average after 2002. That year, an economic               Luxembourg.
portfolios in European countries can be viewed     upturn laid the foundation for resuming finan-              2 Conversion at 2007
as a result of differing pension systems and       cial asset build-up in the household sector,                rates.
saving behaviours. This study generally fo-
cuses on a narrow definition of retirement
                                                   Chart 1 Financial assets of private households [2000=100]
assets (i.e. pension funds and life insurance
                                                   260
reserves), as it is difficult to earmark other
financial assets as destined for retirement                     Western Europe
                                                   230
income. However, analysing the total finan-                     EU15
cial wealth of private households is a worth-                   EMU
                                                   200
while endeavour, as most financial products                     USA

can be used to top up retirement income.                        Japan
                                                   170
                                                                CEE

                                                   140
Trends in financial asset
development                                        110


At the end of 2007, financial assets in West-       80
                                                         2000         2001    2002     2003      2004        2005        2006        2007
ern Europe1 reached EUR 25.8 trillion2. This
was around 15% below the US level (EUR 30.8        Note: Europe excluding Luxembourg
                                                                                        Source: Central banks, statistical offices, Eurostat
trillion) and more than two and a half times

14
Introduction                                                                                               International Pension Studies Western Europe




which had ended abruptly with the stock
                                                    Chart 2 Private households’ financial asset structure, 2007 [%]
market crash at the beginning of the new
millennium. In the US, financial assets even        100       3.4             3.6                               3.5         4.4
                                                                                              6.4
increased by 9.3% p.a. after the downturn                                                                                                    Other
                                                                                              10.9
had torn an exceptionally large hole in house-                                27.4                              30.9        25.3             Insurance/
                                                    80        34.7
hold portfolios because of the high affinity                                                                                                 pension funds

to capital market investments in the US. In                                                   34.5                          10.4
                                                                                                                                             Shares/
                                                                                                                                             mutual funds
contrast, Japanese households, with their low-      60
                                                                              29.4                                          9.5              Bonds
risk and hence low-yield portfolios, recorded                 26.0
                                                                                              2.4               40.6                         Bank deposits
only a moderate increase of 2.7% per year.          40
                                                                              7.9
                                                              6.1
   However, the investment environment                                                        45.8
                                                                                                                            50.5

changed in 2007. Growth rates dropped to            20                                                          8.8
                                                              29.8            31.7
                                                                                                                                     Note: Europe excluding
half the former average at the beginning of                                                                     16.3
                                                                                                                                     Luxembourg
the downturn in housing markets and due to           0
economic uncertainties in many countries.                 Western            EMU              CEE            USA           Japan
                                                          Europe
The impact of the subprime crisis on financial
                                                                                                          Source: Central banks, statistical offices, Eurostat
markets worldwide also played a major role.
In 2008, indications have thus far shown that
the growth of household wealth will slow down       ments, but this is due to the privatisation
considerably. Assuming a stock market down-         process in some Eastern European countries.
turn of 30 % year-end 2008 on year-end 2007
financial wealth in all major regions will even        To a certain extent, bank investments in
decrease.                                           both the US and Europe have seen a revival,
                                                    which is the result of a heightened desire for
   In the US, the crisis will have an even larger   safe investments. Nevertheless, US household
impact than in Western Europe, EMU coun-            portfolios contain only 16% bank products.
tries and Japan. This is because the disparate      In Western Europe, the bank share is almost
performance described above stems largely           twice as high as in the US; in Japan, the figure
from differing household investment patterns        is more than three times higher. In CEE coun-
in the respective regions. Compared with most       tries, the share of bank products is almost
Europeans and the Japanese, American house-         three times as high as in the US, which can
holds show a strong affinity to investments in      be explained by a very low average income.
stocks and mutual funds, which bears both op-       Usually, the portfolio mix initially comprises
portunities and risks for performance in the        less risky and liquid assets (mainly bank de-
overall investment portfolio.                       posits) and shifts towards capital markets
                                                    and more sophisticated products as income
   About 40% of US household portfolios is          and wealth increase.
invested in equity and investment assets; in
1999, this share peaked at almost 50%. Direct
                                                    Chart 3 Share of bank products in household financial portfolios vs.
investment in corporate stocks is no longer
                                                            GDP per capita, 2007 [EUR]
as attractive as it was at that time. Indeed, on
balance, US households have reduced their           70%
exposure to equities. In Western Europe, the
                                                    60%
portion of equity and mutual fund shares                                              Gr
                                                                       CEE                     Jap          A
currently stands at 26%, after peaking at 30%       50%

in 2000.                                            40%
                                                                                                      Other Western
                                                                                                      Eurpean countries
                                                                                                                                                Nor
                                                    30%
   As in the US, the increase in the overall fig-
ure in many European countries stems from           20%
valuation changes over the course of positive                                                        US
                                                    10%
stock market performance up to 2007. It is
not the result of new investment flows, as           0%

households began to invest more cautiously.               0          10,000          20,000      30,000          40,000     50,000       60,000       70,000
                                                                                                                                                       [EUR]
The household portfolio mix in CEE contains
                                                                                                          Source: Central banks, statistical offices, Eurostat
a surprisingly high portion of equity invest-

                                                                                                                                                           15
Introduction                                                                                       International Pension Studies Western Europe




   Insurance and pension products also             hampered insurance/pension asset build-up                               3 In this context, the term
make up a major portion of household finan-        in Greece, where only 3% of financial assets                            pension fund implies all
cial assets. These have benefited from strong-     are allocated to this segment. This figure is                           types of investment in fully
er occupational and private pension provi-         far lower than in all other countries.                                  funded pension schemes.
sioning. In Western Europe, the share of these                                                                             The investment vehicles
assets as part of household financial wealth          Nevertheless, in most Western European                               have different features
has increased by 6.5 percentage points over        countries, growth in the insurance/pension                              and names in some coun-
the last decade. Moreover, in most CEE coun-       segment outperformed total financial asset                              tries. Wherever they are
tries, capital funded pension arrangements         growth in previous years. Again, this demon-                            subject to regulation by
were introduced as mandatory plans. This           strates the importance of insurance and pen-                            the insurance supervisory
gave an enormous boost to this investment          sion products. Below average growth can be                              authorities, they are record-
segment in Europe’s emerging markets. Even         seen in the mature pension markets of Swit-                             ed for statistical purposes
in the US, with its traditionally stronger capi-   zerland and Denmark. It can also be observed                            in the “Insurances/Pension
tal funded pillar, improvements to the sys-        in countries like Spain, where pension reforms                          Funds” category, in accord-
tem are an ongoing process. If IRA (Individual     have yet failed to materialise.                                         ance with ESA ’95.
Retirement Accounts) assets are also taken
into account, which are invested in other
                                                   Chart 4 Gross financial assets in Europe, 2007
product types such as mutual funds, bank
                                                           [% of GDP, private households]
accounts, insurance products or brokerage
accounts, the share of pension assets in the           Switzerland                                                                                   373
US further increased from an already high                        UK                                                                 295
level of 35% in 1997 to 40% ten years later.       The Netherlands                                                                280
                                                          Belgium                                                      253
                                                               Italy                                                 240
European countries                                       Denmark
                                                          Portugal
                                                                                                                    235
                                                                                                                  223
                                                   Western Europe                                                218
The Western European figure for financial                      EMU                                            202
assets combines a variety of investment pat-                Ireland                                          193
terns and levels of wealth. The four biggest                 France                                         189
                                                         Germany                                            188
economies combine two-thirds of total finan-                  Spain                                       182
cial assets, which amounted to EUR 25.8 trillion           Sweden                                       165
in 2007. As the most populous country with                  Austria                                   152
                                                            Greece                                  139
the highest GDP, Germany ranked second be-                  Finland                          112
hind the UK. In terms of gross financial assets            Norway                           103
relative to GDP, Germany is in a much lower
                                                                       0   25 50 75 100 125 150 175 200 225 250 275 300 325 350 375
position (188%) than the UK, where 295% was
registered in 2007. With 373%, Swiss house-
                                                   Chart 5 Share of pension and insurance assets in the total financial assets
holds are the wealthiest in Europe, and are
                                                           of private households, 2007 [%]
also ahead of US or Japanese households.
                                                   The Netherlands                                                                                   58
   These states are followed by the Nether-                      UK                                                                             55
lands, Belgium and Denmark, all of which                 Denmark                                                               43
                                                       Switzerland                                                           42
have stronger funded pension systems than                   Ireland                                                         41
countries with traditionally more extensive                Sweden                                                          40
pay-as-you-go pension systems such as Ger-                   France                                                      38
                                                           Norway                                                      36
many, Spain or Austria. The latter countries       Western Europe                                                     35
all rank in the lower part of the listing. Pre-                EMU                                            27
sumably, the different pension systems have              Germany                                             26
                                                          Belgium                                       24
an impact on asset formation and can par-                   Finland                                21
tially explain the differing trends and finan-            Portugal                            18
cial asset levels in European countries. The                Austria                           18
                                                               Italy                        17
share of insurance and pension fund assets3                   Spain                    14
as part of total financial assets reflects the              Greece          3
importance of the segment in the respective
                                                                       0         10          20               30          40          50             60
countries. The Netherlands, the UK, Denmark
                                                                       Note: Europe excluding Luxembourg
and Switzerland are at the very top. Very high
                                                                                                              Source: Central banks, statistical offices
replacement rates in the first pillar have

16
Introduction                                                                                                                                    International Pension Studies Western Europe




   Very high growth rates of pension / insur-
                                                                        Chart 6 Insurance/pension asset growth vs. total financial asset growth,
ance assets compared to total financial asset
                                                                                2001–2007
growth can be observed in Belgium. This has
been triggered by a new occupational pen-                                                               16
sion scheme (“Vandenbroucke” law), estab-
                                                                                                        14




                                                                    Insurance/pension growth CAGR [%]
lished in 2004, but also life insurance products                                                                                                                  Irl
saw a strong development. Greece also saw                                                               12
                                                                                                                         B                Gr
high growth rates in pension/insurance as-                                                                                                                    N
                                                                                                        10
                                                                                                                                      I     F
sets. This is likely to be the result of the gen-                                                                                                                 SP
                                                                                                        8
erally low level reached up to now, which rep-                                                                                NL
                                                                                                                                      US                  S       Dk
                                                                                                                                       UK           Fin
resents high potential to catch up. Ireland is                                                          6
                                                                                                                        Ger                     A
another country where performance is high,
                                                                                                        4
as it belongs to a group of countries that have                                                                           CH
a very basic first pillar only. Low replacement                                                         2
                                                                                                                    J
rates must be topped up with occupational                                                                   0
and private pension provisioning. The extreme-                                                                  0   4         6            8          10         12              14         16
ly dynamic growth of the overall Irish economy,                                                                                    Financial asset growth CAGR [%]
which has shown the highest average growth
                                                                                                                                                     Source: Allianz Dresdner Economic Research
rates in Western Europe in the last decade, has
given households the financial leeway they
need to save for retirement.                                               The different behaviours and influences
                                                                        from differing regulatory, statutory and fiscal
   Other reasons for the varying development                            arrangements have led to strongly varying
of total financial wealth include the general                           trends. Depending on investment preferenc-
propensity to save and differences in invest-                           es, the stock market boom in the late 1990s
ment behaviour itself. As already shown for                             had a number of impacts on portfolios. In
the different regions of the world, risk aversion                       most European countries, financial assets
levels differ tremendously. Greek households                            grew rapidly between 1996 and 2000. This
hold the biggest share of bank products. This                           was related directly and indirectly to stock
risk aversion may be due to a lower level of                            market gains in particular, which affected
income and economic development. As one                                 both the valuation of existing stockholdings
of the wealthier countries, portfolios in Aus-                          and attracted massive new inflows of funds.
tria are geared heavily towards security, with
almost 50% invested in bank deposits and                                  The boom gripped the Finns, Swedes and
another 9% in debt securities. Spain and                                Greeks in particular, generating strong growth
Germany are also among the countries that                               between 1996 and 2000 – and losses in the
invest conservatively compared to other                                 subsequent downturn. Still, together with
European countries.                                                     Spain and Norway, these countries experi-
                                                                        enced the highest asset gains. At the end of



   Savings ratio
   Savings ratios are often used as an indicator of savings behaviour . This can be misleading for cross­
   country comparisons, as contributions to pension schemes are not counted as savings . In contrast,
   the accumulated savings of pension assets do count as financial assets . The savings ratio is usually
   calculated as the difference between income and consumption . Contributions to pension schemes
   and investments in other financial assets, such as bank deposits, are treated differently . While the
   former is recorded in national accounts as a household expense that reduces saving potential,
   the latter is viewed as saving . However, since contributions to pension schemes increase financial
   wealth, countries with large funded pension systems often show low savings ratios, but high finan­
   cial wealth (as share of GDP) . This puts the very low savings ratio of UK households compared with
   the higher ratio in Germany, for instance, into a more realistic perspective .

   See also: Eurostat, Savings rates in Europe, Statistics in Focus, 33/2002.




                                                                                                                                                                                            17
Introduction                                                                            International Pension Studies Western Europe




2007, their wealth was about one and a half        lead to higher asset valuations in the medi-
times higher than at the beginning of 1997.        um and long term. In turn, this will provide a
In contrast, during this period Belgium and        partial substitute for saving. This correlation
Germany registered respective increases of         may be one of many reasons for the decreas-
only 50% and 60%. By 2005, all countries that      ing savings ratios that were observed in most
had suffered absolute losses of wealth passed      European countries until the beginning of the
their previous wealth peaks. And as a result       new millennium. For the projection period,
of favourable capital market developments,         we have assumed a share performance of 7%
they further increased their financial assets      p.a. from 2009 onwards.
until 2007.
                                                      In 2008, the financial crisis that resulted
                                                   from the subprime crisis in the United
Financial asset projection                         States has put a burden on stock markets.
through 2020                                       The high 2007 year-end figures are unlikely
                                                   to be reached by the end of 2008. Our fore-
Moving forward, we expect the acquisition          casts were undertaken in the third quarter
of financial assets to progress dynamically.       of 2008 and we have assumed that stock
In many European countries, the develop-           markets lose 30% in 2008. These perform-
ment of monetary wealth will be driven by          ance figures also influence the assets under
efforts to provide for retirement. This will not   management of investment funds.
only be the case in countries with already
strong funded pension systems (such as the            Investments will flow into a wide variety of
UK, the Netherlands and Switzerland), but          product categories. A precise product-specific
also in states where reforms to public pay-        forecast or econometric estimate is virtually
as-you-go systems will lead to lower pension       impossible for a longer period, as preferences
levels. Particularly in these countries (such as   for particular investment vehicles may depend
Germany, Italy and Austria), people are grad-      on factors that are difficult to predict, such as
ually learning to accept the need for supple-      legal or tax circumstances and interest rate
mentary private provision and are building         developments. For this reason, our assump-
up capital accordingly. Although this process      tion on asset allocation is based on long-term
will develop differently across European coun-     historical structural shifts. These are driven
tries and depends on awareness and the             by rising incomes and personal wealth, which
progress of reform, sales of products for old-     lead investors to higher performing, riskier
age provisioning are likely to be very suc-        products. Although stock market volatility
cessful in the coming years.                       during this decade has reinstated the security
                                                   aspect, the basic change in investment be-
   Moreover, the need for personal pension         haviour with increasing income is likely to
provision will encourage broader sections of       remain stable.
the population to save beyond state-incentiv-
ised pension schemes. In most countries, our          In light of these patterns, countries with
projection therefore assumes a slightly high-      higher portions of direct or indirect exposure
er savings rate than in the past. However, the     to equity markets (through mutual or pension
ratios will barely get back to the levels of the   funds), such as the UK, Sweden, Finland, Ire-           4 This growth rate differs
early 1990s. Additional retirement saving will     land or Spain, will see higher growth in house-         slightly from that in the
likely replace other precautionary savings         hold financial assets than countries with a             following article on pen-
efforts and the increasing number of elderly       more conservative investment approach or                sion assets. This is due to
people will reduce their personal savings          smaller funded pension systems. On average,             some classification dif-
efforts as they retire.                            we expect the financial wealth of Western               ferences in the financial
                                                   European households to increase by 4.4% p.a.            flow statistics of national
   The increase in wealth is driven not only                                                               accounts and the specific
by savings, but also by asset valuations, as          Total financial assets will therefore increase       pension statistics we used
the development of financial assets has dem-       by 75% until 2020, reaching almost EUR 45.3             for the market analysis.
onstrated in past decades. Stock market per-       trillion. The strongest growth will be registered       One major difference is
formance also represents an important part         in the area of insurance and pensions (5.4%)4.          that non-life insurance
of the increase in monetary wealth. Rising         By 2020, the importance of these products in            products are included in
investment in equities and equity funds will       household portfolios will gain 3.5 percentage           the financial accounts.


18
Introduction                                                                                      International Pension Studies Western Europe




points. Above average growth will also be ob-
                                                     Chart 7 The financial asset structure of private households, 2007–2020
served in the shares and mutual fund segment
(4.6%). This will extend their portfolio share
                                                     100                   3                                    3
by roughly one percentage point. The main                    3.4                                  3.6
                                                                                                                                   Other
losers in this process will be bank products.
                                                                                                  27.4          32                 Insurance/
                                                      80     34.7          39                                                      pension funds
   In Continental Europe, particularly in coun-
                                                                                                                                   Shares/
tries that belong to the monetary union, growth                                                                                    mutual funds
                                                      60
rates in the insurance and pension segment                                                        29.4                             Bonds
                                                             26.0                                               31
are slightly higher (5.6%) due to emerging pen-                            27                                                      Bank deposits
sion saving programs. With its above-average          40
                                                                                                  7.9
                                                             6.1
growth rate, the UK market is not included.                                5
                                                                                                                7

In EMU countries, financial assets will grow          20
                                                                                                  31.7
by only 4.3%, amounting to EUR 30.9 trillion                 29.8          26                                   27
                                                                                                                           Note: Europe excluding
in 2020 from EUR 17.8 trillion in 2007.                                                                                    Luxembourg
                                                       0
                                                            2007        2020                     2007          2020
   Prospects for the long-term development                   Western Europe                              EMU
of financial assets are quite good, as growth
                                                           Source: Central banks, statistical offices, Eurostat, Allianz Dresdner Economic Research
rates are expected to be higher than GDP
growth. However, it should be noted that the
financial turbulence of 2007/08 is yet again         At the same time, introducing fully-funded
putting individual investors and long-term           pensions in industrialised nations has be-
savers in capital market products to the test.       come more pressing than ever.



   Explanatory notes
   Financial assets
   The household sector’s financial assets are calculated in the financial flow statistics provid-
   ed by central banks or national statistical offices. The aggregate financial account shows
   by whom, on what scale and in which form financial resources have been made available
   in an economy. The system is aligned to the “European System of Accounts” (ESA), which
   was made binding in the European Union in 1999. Its aim is to provide a consistent set of
   criteria with which all economic sectors and activities can be defined.

      Insurances and pension products comprise one product group in the financial accounts.
   In this category, investment vehicles are recorded that are subject to regulation by insurance
   supervisory authorities, in accordance with ESA ’95. These include all types of investment in
   fully-funded pension schemes and insurance products. Prepayments of insurance premi-
   ums and reserves for outstanding claims are also included in this segment. The values are
   technical reserves. Insurance reserves and pension fund assets are not separated for all
   countries. This means that non-life, life and pension assets are shown in an aggregate fig-
   ure in the analysis of financial assets. This figure differs slightly from the definition in the
   “retirement asset” part of the study (see next article).

   Projections
   While accruals in financial assets can be traced back to valuation changes and flows, flows
   come from savings and contributions from other sources. As far as saving is concerned,
   assumptions must be made on the development of disposable income and savings rates.
   For disposable income, an increase in line with nominal GDP growth has been assumed.
   The growth forecasts for real GDP and inflation in the individual countries up to 2020 are
   based on Allianz Group Economic Research projections. The data on savings rates up to
   2009 are sourced from OECD statistics; constant or slightly increasing savings rates have
   been assumed for the respective countries.




                                                                                                                                                19
Introduction                                                                             International Pension Studies Western Europe




        Particularly with regard to allocation, assumptions are difficult to make, as preferences
     for special types of investment depend on interest rate trends or legal or tax conditions,
     for instance. Inflow allocation to the various financial instruments has therefore been based
     on the average behaviour of the past 10 years. Allowance has further been made for the
     likelihood of additional funds being channelled into private retirement provision in any one
     country, insofar as there are newly introduced private pension plans that are incentivised
     by the government.




Dr. Renate Finke,
Allianz Dresdner Economic Research




20
Introduction                                                                           International Pension Studies Western Europe




Trends and Asset
Development in European
Pension Markets

Reforming public pensions                           Nevertheless, almost all countries have
                                                 trimmed their public pension systems to
Western Europe’s pension systems have            varying degrees and increased the retirement
changed continuously and considerably.           age to strengthen the sustainability of their
For the most part, reforms of the last decade    public pension systems. Countries like Swe-
were triggered by the insight that ageing        den, Austria and Italy have established a very
Western European populations would place         strong link between contributions and bene-
an unbearable burden on the public pension       fits in the public pillar. They have introduced a
systems in place in the medium and long term.    notional defined contribution system in which
This is because the ratio between contributing   contributions are recorded in notional indi-
employees and retirees will worsen, in some      vidual accounts and benefits depend on the
countries dramatically. The degree of change     accumulated sum and cohort life expectancy.
and the depth of reform have differed across
Europe. This is hardly surprising, as the pen-       Despite these reforms, Western Europe’s
sion policies of Western European countries      public pensions are still very generous in
have been based on very different foundations.   a worldwide comparison. Some European
                                                 countries show exceptionally high replace-
   Western Europe’s public pension policies      ment rates, which are defined as the ratio of
are largely based on two different systems.      post- to pre-retirement income. In Italy and
Bismarckian systems comprise public pen-         Portugal, the net replacement rate for aver-
sions that provide earnings-related benefits     age earners is around 90% of pre-retirement
and aim at maintaining income in retirement.     income. In Luxembourg, Spain and Greece,
In contrast, Beveridgean systems mainly aim      it is 100% or more. This dominating public
to prevent poverty, often through flat-rate      pillar will have a strong impact on public
systems. Austria, Belgium, France, Germany,      finances in the future, which will influence
Italy and Spain belong to the former group,      the need for pension system reform.
while Ireland, the Netherlands and the UK
are examples of the latter. Mixed models can         The Allianz Dresdner Reform Pressure Gauge
be found in the Scandinavian countries and       summarises the effects at work, compares and
Switzerland. Since Bismarckian systems are       illustrates the sustainability of pension systems
associated with higher public pension expe-      and the need to reform. It includes the likely
ditures, they have also faced a much greater     effects of reforms already initiated. In so doing,
need for reform. Another factor that has de-     it assesses the future sustainability of pension
termined the urgency of reform has been a        systems and shows that reform pressure is
widely differing demographic outlook from        highest in Greece. Generally, countries with
country to country. While Spain, Italy, Por-     very high replacement rates and underdevel-
tugal, Greece and Germany must cope with         oped funded systems are under the highest
strongly ageing societies, populations in        reform pressure, as they will face dramatic
Switzerland, the Netherlands, the UK, Ireland    increases in public pension expenditure in the
and Scandinavia are not ageing quite as          future. Portugal, Spain and Luxembourg face
dramatically.                                    this very situation. For Sweden, the UK, Den-
                                                 mark and the Netherlands, the Pressure Gauge

                                                                                                                                21
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008
Funded Pensions In Western Europe 2008

More Related Content

What's hot

More than a minimum: The review of the minimum wage - Final report
More than a minimum: The review of the minimum wage - Final reportMore than a minimum: The review of the minimum wage - Final report
More than a minimum: The review of the minimum wage - Final reportResolutionFoundation
 
Economic Outlook, Nordea, September 2010
Economic Outlook, Nordea, September 2010Economic Outlook, Nordea, September 2010
Economic Outlook, Nordea, September 2010Nordea Bank
 
Mock examhigher
Mock examhigherMock examhigher
Mock examhigherSusie Nash
 
Slovenian business culture guide - Learn about Slovenia
Slovenian business culture guide - Learn about SloveniaSlovenian business culture guide - Learn about Slovenia
Slovenian business culture guide - Learn about SloveniaSalford Business School
 
Analysis of International Funding to Tackle IWT
Analysis of International Funding to Tackle IWTAnalysis of International Funding to Tackle IWT
Analysis of International Funding to Tackle IWThasita
 
World Employment and Social Outloock
World Employment and Social OutloockWorld Employment and Social Outloock
World Employment and Social OutloockYsrrael Camero
 
2009 Botswana Banking & Financial Sector Review (Capital Securities)
2009  	Botswana Banking & Financial Sector Review (Capital Securities)2009  	Botswana Banking & Financial Sector Review (Capital Securities)
2009 Botswana Banking & Financial Sector Review (Capital Securities)econsultbw
 
Contagion effect of greece debt crisis
Contagion effect of greece debt crisisContagion effect of greece debt crisis
Contagion effect of greece debt crisisNewGate India
 
The Age Old Problem of Old Age: Fixing the Pension
The Age Old Problem of Old Age: Fixing the PensionThe Age Old Problem of Old Age: Fixing the Pension
The Age Old Problem of Old Age: Fixing the PensionCISResearch
 
Eurostat Regional Yearbook
Eurostat Regional YearbookEurostat Regional Yearbook
Eurostat Regional Yearbooksynapticaweb
 
Exit Route Theory Of Globalisation
Exit Route Theory Of GlobalisationExit Route Theory Of Globalisation
Exit Route Theory Of GlobalisationOluwasegun Bewaji
 

What's hot (19)

More than a minimum: The review of the minimum wage - Final report
More than a minimum: The review of the minimum wage - Final reportMore than a minimum: The review of the minimum wage - Final report
More than a minimum: The review of the minimum wage - Final report
 
CASE Network Reports 55 - The Sources of Economic Growth in Ukraine after 199...
CASE Network Reports 55 - The Sources of Economic Growth in Ukraine after 199...CASE Network Reports 55 - The Sources of Economic Growth in Ukraine after 199...
CASE Network Reports 55 - The Sources of Economic Growth in Ukraine after 199...
 
Economic Outlook, Nordea, September 2010
Economic Outlook, Nordea, September 2010Economic Outlook, Nordea, September 2010
Economic Outlook, Nordea, September 2010
 
Mock examhigher
Mock examhigherMock examhigher
Mock examhigher
 
Slovenian business culture guide - Learn about Slovenia
Slovenian business culture guide - Learn about SloveniaSlovenian business culture guide - Learn about Slovenia
Slovenian business culture guide - Learn about Slovenia
 
Analysis of International Funding to Tackle IWT
Analysis of International Funding to Tackle IWTAnalysis of International Funding to Tackle IWT
Analysis of International Funding to Tackle IWT
 
The Story of the Open Pension Funds and the Employee Capital Plans in Poland....
The Story of the Open Pension Funds and the Employee Capital Plans in Poland....The Story of the Open Pension Funds and the Employee Capital Plans in Poland....
The Story of the Open Pension Funds and the Employee Capital Plans in Poland....
 
Trends 2015
Trends 2015Trends 2015
Trends 2015
 
World Employment and Social Outloock
World Employment and Social OutloockWorld Employment and Social Outloock
World Employment and Social Outloock
 
2009 Botswana Banking & Financial Sector Review (Capital Securities)
2009  	Botswana Banking & Financial Sector Review (Capital Securities)2009  	Botswana Banking & Financial Sector Review (Capital Securities)
2009 Botswana Banking & Financial Sector Review (Capital Securities)
 
Contagion effect of greece debt crisis
Contagion effect of greece debt crisisContagion effect of greece debt crisis
Contagion effect of greece debt crisis
 
The Age Old Problem of Old Age: Fixing the Pension
The Age Old Problem of Old Age: Fixing the PensionThe Age Old Problem of Old Age: Fixing the Pension
The Age Old Problem of Old Age: Fixing the Pension
 
CASE Network Report 66 - Prospects for EU-Ukraine Economic Relations
CASE Network Report 66 - Prospects for EU-Ukraine Economic RelationsCASE Network Report 66 - Prospects for EU-Ukraine Economic Relations
CASE Network Report 66 - Prospects for EU-Ukraine Economic Relations
 
Dma 2013 Statistics
Dma 2013 StatisticsDma 2013 Statistics
Dma 2013 Statistics
 
CASE Network Report 51 - Currency Crises in Emerging - Market Economies: Caus...
CASE Network Report 51 - Currency Crises in Emerging - Market Economies: Caus...CASE Network Report 51 - Currency Crises in Emerging - Market Economies: Caus...
CASE Network Report 51 - Currency Crises in Emerging - Market Economies: Caus...
 
CASE Network Report 40 - The Episodes of Currency Crises in the European Tran...
CASE Network Report 40 - The Episodes of Currency Crises in the European Tran...CASE Network Report 40 - The Episodes of Currency Crises in the European Tran...
CASE Network Report 40 - The Episodes of Currency Crises in the European Tran...
 
Eurostat Regional Yearbook
Eurostat Regional YearbookEurostat Regional Yearbook
Eurostat Regional Yearbook
 
Exit Route Theory Of Globalisation
Exit Route Theory Of GlobalisationExit Route Theory Of Globalisation
Exit Route Theory Of Globalisation
 
Roma Early Childhood Inclusion
Roma Early Childhood InclusionRoma Early Childhood Inclusion
Roma Early Childhood Inclusion
 

Viewers also liked

Allianz Risk Pulse: Zukunft der indivduellen Mobilität
Allianz Risk Pulse: Zukunft der indivduellen MobilitätAllianz Risk Pulse: Zukunft der indivduellen Mobilität
Allianz Risk Pulse: Zukunft der indivduellen MobilitätOpen Knowledge
 
2010 – Demographic Turning Point on the EU Labor Market
2010 – Demographic Turning Point on the EU Labor Market2010 – Demographic Turning Point on the EU Labor Market
2010 – Demographic Turning Point on the EU Labor MarketOpen Knowledge
 
Allianz Demographic Pulse - Retirement Tsunami
Allianz Demographic Pulse - Retirement TsunamiAllianz Demographic Pulse - Retirement Tsunami
Allianz Demographic Pulse - Retirement TsunamiOpen Knowledge
 
International Pensions & Aging
International Pensions & AgingInternational Pensions & Aging
International Pensions & AgingOpen Knowledge
 
Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...
Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...
Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...Open Knowledge
 
Allianz Demographic Pulse On Dementia
Allianz Demographic Pulse On DementiaAllianz Demographic Pulse On Dementia
Allianz Demographic Pulse On DementiaOpen Knowledge
 
Doing Good by Investing Well? Pension Funds and Socially Responsible Investment
Doing Good by Investing Well? Pension Funds and Socially Responsible InvestmentDoing Good by Investing Well? Pension Funds and Socially Responsible Investment
Doing Good by Investing Well? Pension Funds and Socially Responsible InvestmentOpen Knowledge
 
'Protecting Your Home from Wildfire' - Fireman's Fund Insurance Company
'Protecting Your Home from Wildfire' - Fireman's Fund Insurance Company'Protecting Your Home from Wildfire' - Fireman's Fund Insurance Company
'Protecting Your Home from Wildfire' - Fireman's Fund Insurance CompanyOpen Knowledge
 
How declining populations can effect productivity -- PROJECT M
How declining populations can effect productivity -- PROJECT MHow declining populations can effect productivity -- PROJECT M
How declining populations can effect productivity -- PROJECT MOpen Knowledge
 

Viewers also liked (9)

Allianz Risk Pulse: Zukunft der indivduellen Mobilität
Allianz Risk Pulse: Zukunft der indivduellen MobilitätAllianz Risk Pulse: Zukunft der indivduellen Mobilität
Allianz Risk Pulse: Zukunft der indivduellen Mobilität
 
2010 – Demographic Turning Point on the EU Labor Market
2010 – Demographic Turning Point on the EU Labor Market2010 – Demographic Turning Point on the EU Labor Market
2010 – Demographic Turning Point on the EU Labor Market
 
Allianz Demographic Pulse - Retirement Tsunami
Allianz Demographic Pulse - Retirement TsunamiAllianz Demographic Pulse - Retirement Tsunami
Allianz Demographic Pulse - Retirement Tsunami
 
International Pensions & Aging
International Pensions & AgingInternational Pensions & Aging
International Pensions & Aging
 
Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...
Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...
Impact of the Euro debt crisis on the investment behavior of 50+ European Inv...
 
Allianz Demographic Pulse On Dementia
Allianz Demographic Pulse On DementiaAllianz Demographic Pulse On Dementia
Allianz Demographic Pulse On Dementia
 
Doing Good by Investing Well? Pension Funds and Socially Responsible Investment
Doing Good by Investing Well? Pension Funds and Socially Responsible InvestmentDoing Good by Investing Well? Pension Funds and Socially Responsible Investment
Doing Good by Investing Well? Pension Funds and Socially Responsible Investment
 
'Protecting Your Home from Wildfire' - Fireman's Fund Insurance Company
'Protecting Your Home from Wildfire' - Fireman's Fund Insurance Company'Protecting Your Home from Wildfire' - Fireman's Fund Insurance Company
'Protecting Your Home from Wildfire' - Fireman's Fund Insurance Company
 
How declining populations can effect productivity -- PROJECT M
How declining populations can effect productivity -- PROJECT MHow declining populations can effect productivity -- PROJECT M
How declining populations can effect productivity -- PROJECT M
 

Similar to Funded Pensions In Western Europe 2008

Defined Contribution In Europe: the Direction
Defined Contribution In Europe: the DirectionDefined Contribution In Europe: the Direction
Defined Contribution In Europe: the DirectionOpen Knowledge
 
Pension trends in_emerging_markets
Pension trends in_emerging_marketsPension trends in_emerging_markets
Pension trends in_emerging_marketsOpen Knowledge
 
CMU_Securitisation_&_SME
CMU_Securitisation_&_SMECMU_Securitisation_&_SME
CMU_Securitisation_&_SMEBrian Hughes
 
This is Social Innovation
This is Social InnovationThis is Social Innovation
This is Social InnovationGorka Espiau
 
2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paper2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paperIndonesia AIDS Coalition
 
2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paper2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paperIndonesia AIDS Coalition
 
Iese vcpe index_annual_2009
Iese vcpe index_annual_2009Iese vcpe index_annual_2009
Iese vcpe index_annual_2009Jose Gonzalez
 
International migration outlook
International migration outlookInternational migration outlook
International migration outlookIntegraLocal
 

Similar to Funded Pensions In Western Europe 2008 (20)

CASE Network Report 36 - Rational Pension Supervision.First Experiencies of C...
CASE Network Report 36 - Rational Pension Supervision.First Experiencies of C...CASE Network Report 36 - Rational Pension Supervision.First Experiencies of C...
CASE Network Report 36 - Rational Pension Supervision.First Experiencies of C...
 
Defined Contribution In Europe: the Direction
Defined Contribution In Europe: the DirectionDefined Contribution In Europe: the Direction
Defined Contribution In Europe: the Direction
 
Fiscal Sustainability: Conceptual, Institutional, and Policy Issues
Fiscal Sustainability: Conceptual, Institutional, and Policy IssuesFiscal Sustainability: Conceptual, Institutional, and Policy Issues
Fiscal Sustainability: Conceptual, Institutional, and Policy Issues
 
Pension trends in_emerging_markets
Pension trends in_emerging_marketsPension trends in_emerging_markets
Pension trends in_emerging_markets
 
The impact of pension system reform on projected old-age income: the case of ...
The impact of pension system reform on projected old-age income: the case of ...The impact of pension system reform on projected old-age income: the case of ...
The impact of pension system reform on projected old-age income: the case of ...
 
Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?
Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?
Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?
 
Social harmonization and labor market performance in europe
Social harmonization and labor market performance in europeSocial harmonization and labor market performance in europe
Social harmonization and labor market performance in europe
 
KE-BD-14-001-EN-N
KE-BD-14-001-EN-NKE-BD-14-001-EN-N
KE-BD-14-001-EN-N
 
Christos_Vassis_2011
Christos_Vassis_2011Christos_Vassis_2011
Christos_Vassis_2011
 
CMU_Securitisation_&_SME
CMU_Securitisation_&_SMECMU_Securitisation_&_SME
CMU_Securitisation_&_SME
 
This is Social Innovation
This is Social InnovationThis is Social Innovation
This is Social Innovation
 
This is European Social Innovation
This is European Social InnovationThis is European Social Innovation
This is European Social Innovation
 
This is European Social Innovation
This is European Social InnovationThis is European Social Innovation
This is European Social Innovation
 
2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paper2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paper
 
2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paper2 supplementary-webappendix-if-lancet-paper
2 supplementary-webappendix-if-lancet-paper
 
CASE Network Report 38 - Credibility of the Exchange Rate Policy in Transitio...
CASE Network Report 38 - Credibility of the Exchange Rate Policy in Transitio...CASE Network Report 38 - Credibility of the Exchange Rate Policy in Transitio...
CASE Network Report 38 - Credibility of the Exchange Rate Policy in Transitio...
 
Iese vcpe index_annual_2009
Iese vcpe index_annual_2009Iese vcpe index_annual_2009
Iese vcpe index_annual_2009
 
International migration outlook
International migration outlookInternational migration outlook
International migration outlook
 
CASE Network Report 78 - Scenarios For Health Expenditure in Poland
CASE Network Report 78 - Scenarios For Health Expenditure in PolandCASE Network Report 78 - Scenarios For Health Expenditure in Poland
CASE Network Report 78 - Scenarios For Health Expenditure in Poland
 
Virtual currencies and their potential impact on financial markets and moneta...
Virtual currencies and their potential impact on financial markets and moneta...Virtual currencies and their potential impact on financial markets and moneta...
Virtual currencies and their potential impact on financial markets and moneta...
 

More from Open Knowledge

Allianz Risk Pulse: The Future of Individual Mobility
Allianz Risk Pulse: The Future of Individual MobilityAllianz Risk Pulse: The Future of Individual Mobility
Allianz Risk Pulse: The Future of Individual MobilityOpen Knowledge
 
Allianz Demographic Pulse | Retirement | March 2013
Allianz Demographic Pulse | Retirement | March 2013Allianz Demographic Pulse | Retirement | March 2013
Allianz Demographic Pulse | Retirement | March 2013Open Knowledge
 
Allianz: 100 Fakten zur Nachhaltigkeit
Allianz: 100 Fakten zur NachhaltigkeitAllianz: 100 Fakten zur Nachhaltigkeit
Allianz: 100 Fakten zur NachhaltigkeitOpen Knowledge
 
Allianz Sustainability: 100 Facts connected
Allianz Sustainability: 100 Facts connectedAllianz Sustainability: 100 Facts connected
Allianz Sustainability: 100 Facts connectedOpen Knowledge
 
What's happening in... the Netherlands?
What's happening in... the Netherlands?What's happening in... the Netherlands?
What's happening in... the Netherlands?Open Knowledge
 
121203 whats happening_netherlands
121203 whats happening_netherlands121203 whats happening_netherlands
121203 whats happening_netherlandsOpen Knowledge
 
Allianz Risk Pulse - Business Risks: Country Information
Allianz Risk Pulse - Business Risks: Country InformationAllianz Risk Pulse - Business Risks: Country Information
Allianz Risk Pulse - Business Risks: Country InformationOpen Knowledge
 
Allianz Global Investors Risk Monitor #4
Allianz Global Investors Risk Monitor #4Allianz Global Investors Risk Monitor #4
Allianz Global Investors Risk Monitor #4Open Knowledge
 
10 Key Components of the Fiscal Cliff
10 Key Components of the Fiscal Cliff10 Key Components of the Fiscal Cliff
10 Key Components of the Fiscal CliffOpen Knowledge
 
Fiscal Cliff Obscures Fading Fundamentals
Fiscal Cliff Obscures Fading FundamentalsFiscal Cliff Obscures Fading Fundamentals
Fiscal Cliff Obscures Fading FundamentalsOpen Knowledge
 
Allianz Risk Pulse Mobility & Road Safety
Allianz Risk Pulse Mobility & Road SafetyAllianz Risk Pulse Mobility & Road Safety
Allianz Risk Pulse Mobility & Road SafetyOpen Knowledge
 
PIMCO DC Dialogue - First Manage Your Risk
PIMCO DC Dialogue - First Manage Your RiskPIMCO DC Dialogue - First Manage Your Risk
PIMCO DC Dialogue - First Manage Your RiskOpen Knowledge
 
Allianz Global Wealth Report
Allianz Global Wealth Report Allianz Global Wealth Report
Allianz Global Wealth Report Open Knowledge
 
Allianz Life North America – Reclaiming the Future
Allianz Life North America – Reclaiming the FutureAllianz Life North America – Reclaiming the Future
Allianz Life North America – Reclaiming the FutureOpen Knowledge
 
Allianz Life North America – Rethinking What’s Ahead in Retirement
Allianz Life North America – Rethinking What’s Ahead in RetirementAllianz Life North America – Rethinking What’s Ahead in Retirement
Allianz Life North America – Rethinking What’s Ahead in RetirementOpen Knowledge
 
PIMCO DC Dialogue - It's Your Living Standard
PIMCO DC Dialogue - It's Your Living StandardPIMCO DC Dialogue - It's Your Living Standard
PIMCO DC Dialogue - It's Your Living StandardOpen Knowledge
 
Space Risks: A new generation of challenges
Space Risks: A new generation of challengesSpace Risks: A new generation of challenges
Space Risks: A new generation of challengesOpen Knowledge
 
Global Pension Atlas Germany
Global Pension Atlas GermanyGlobal Pension Atlas Germany
Global Pension Atlas GermanyOpen Knowledge
 
Why Saving on a Regular Basis Might Be Wise
Why Saving on a Regular Basis Might Be WiseWhy Saving on a Regular Basis Might Be Wise
Why Saving on a Regular Basis Might Be WiseOpen Knowledge
 

More from Open Knowledge (20)

Allianz Risk Pulse: The Future of Individual Mobility
Allianz Risk Pulse: The Future of Individual MobilityAllianz Risk Pulse: The Future of Individual Mobility
Allianz Risk Pulse: The Future of Individual Mobility
 
Allianz Demographic Pulse | Retirement | March 2013
Allianz Demographic Pulse | Retirement | March 2013Allianz Demographic Pulse | Retirement | March 2013
Allianz Demographic Pulse | Retirement | March 2013
 
Allianz: 100 Fakten zur Nachhaltigkeit
Allianz: 100 Fakten zur NachhaltigkeitAllianz: 100 Fakten zur Nachhaltigkeit
Allianz: 100 Fakten zur Nachhaltigkeit
 
Allianz Sustainability: 100 Facts connected
Allianz Sustainability: 100 Facts connectedAllianz Sustainability: 100 Facts connected
Allianz Sustainability: 100 Facts connected
 
What's happening in... the Netherlands?
What's happening in... the Netherlands?What's happening in... the Netherlands?
What's happening in... the Netherlands?
 
121203 whats happening_netherlands
121203 whats happening_netherlands121203 whats happening_netherlands
121203 whats happening_netherlands
 
Allianz Risk Pulse - Business Risks: Country Information
Allianz Risk Pulse - Business Risks: Country InformationAllianz Risk Pulse - Business Risks: Country Information
Allianz Risk Pulse - Business Risks: Country Information
 
Euro 2022
Euro 2022Euro 2022
Euro 2022
 
Allianz Global Investors Risk Monitor #4
Allianz Global Investors Risk Monitor #4Allianz Global Investors Risk Monitor #4
Allianz Global Investors Risk Monitor #4
 
10 Key Components of the Fiscal Cliff
10 Key Components of the Fiscal Cliff10 Key Components of the Fiscal Cliff
10 Key Components of the Fiscal Cliff
 
Fiscal Cliff Obscures Fading Fundamentals
Fiscal Cliff Obscures Fading FundamentalsFiscal Cliff Obscures Fading Fundamentals
Fiscal Cliff Obscures Fading Fundamentals
 
Allianz Risk Pulse Mobility & Road Safety
Allianz Risk Pulse Mobility & Road SafetyAllianz Risk Pulse Mobility & Road Safety
Allianz Risk Pulse Mobility & Road Safety
 
PIMCO DC Dialogue - First Manage Your Risk
PIMCO DC Dialogue - First Manage Your RiskPIMCO DC Dialogue - First Manage Your Risk
PIMCO DC Dialogue - First Manage Your Risk
 
Allianz Global Wealth Report
Allianz Global Wealth Report Allianz Global Wealth Report
Allianz Global Wealth Report
 
Allianz Life North America – Reclaiming the Future
Allianz Life North America – Reclaiming the FutureAllianz Life North America – Reclaiming the Future
Allianz Life North America – Reclaiming the Future
 
Allianz Life North America – Rethinking What’s Ahead in Retirement
Allianz Life North America – Rethinking What’s Ahead in RetirementAllianz Life North America – Rethinking What’s Ahead in Retirement
Allianz Life North America – Rethinking What’s Ahead in Retirement
 
PIMCO DC Dialogue - It's Your Living Standard
PIMCO DC Dialogue - It's Your Living StandardPIMCO DC Dialogue - It's Your Living Standard
PIMCO DC Dialogue - It's Your Living Standard
 
Space Risks: A new generation of challenges
Space Risks: A new generation of challengesSpace Risks: A new generation of challenges
Space Risks: A new generation of challenges
 
Global Pension Atlas Germany
Global Pension Atlas GermanyGlobal Pension Atlas Germany
Global Pension Atlas Germany
 
Why Saving on a Regular Basis Might Be Wise
Why Saving on a Regular Basis Might Be WiseWhy Saving on a Regular Basis Might Be Wise
Why Saving on a Regular Basis Might Be Wise
 

Recently uploaded

EDD8524 The Future of Educational Leader
EDD8524 The Future of Educational LeaderEDD8524 The Future of Educational Leader
EDD8524 The Future of Educational LeaderDr. Bruce A. Johnson
 
The First National K12 TUG March 6 2024.pdf
The First National K12 TUG March 6 2024.pdfThe First National K12 TUG March 6 2024.pdf
The First National K12 TUG March 6 2024.pdfdogden2
 
Material Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.pptMaterial Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.pptBanaras Hindu University
 
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.docdieu18
 
3.12.24 Freedom Summer in Mississippi.pptx
3.12.24 Freedom Summer in Mississippi.pptx3.12.24 Freedom Summer in Mississippi.pptx
3.12.24 Freedom Summer in Mississippi.pptxmary850239
 
Metabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptxMetabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptxDr. Santhosh Kumar. N
 
BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...
BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...
BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...Nguyen Thanh Tu Collection
 
How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17
How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17
How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17Celine George
 
Metabolism of lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptx
Metabolism of  lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptxMetabolism of  lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptx
Metabolism of lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptxDr. Santhosh Kumar. N
 
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...Marlene Maheu
 
LEAD6001 - Introduction to Advanced Stud
LEAD6001 - Introduction to Advanced StudLEAD6001 - Introduction to Advanced Stud
LEAD6001 - Introduction to Advanced StudDr. Bruce A. Johnson
 
Riti theory by Vamana Indian poetics.pptx
Riti theory by Vamana Indian poetics.pptxRiti theory by Vamana Indian poetics.pptx
Riti theory by Vamana Indian poetics.pptxDhatriParmar
 
Pharmacology chapter No 7 full notes.pdf
Pharmacology chapter No 7 full notes.pdfPharmacology chapter No 7 full notes.pdf
Pharmacology chapter No 7 full notes.pdfSumit Tiwari
 
VIT336 – Recommender System - Unit 3.pdf
VIT336 – Recommender System - Unit 3.pdfVIT336 – Recommender System - Unit 3.pdf
VIT336 – Recommender System - Unit 3.pdfArthyR3
 
Awards Presentation 2024 - March 12 2024
Awards Presentation 2024 - March 12 2024Awards Presentation 2024 - March 12 2024
Awards Presentation 2024 - March 12 2024bsellato
 
HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...
HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...
HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...Nguyen Thanh Tu Collection
 
THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...
THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...
THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...Subham Panja
 
2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...Sandy Millin
 
3.14.24 Gender Discrimination and Gender Inequity.pptx
3.14.24 Gender Discrimination and Gender Inequity.pptx3.14.24 Gender Discrimination and Gender Inequity.pptx
3.14.24 Gender Discrimination and Gender Inequity.pptxmary850239
 

Recently uploaded (20)

EDD8524 The Future of Educational Leader
EDD8524 The Future of Educational LeaderEDD8524 The Future of Educational Leader
EDD8524 The Future of Educational Leader
 
The First National K12 TUG March 6 2024.pdf
The First National K12 TUG March 6 2024.pdfThe First National K12 TUG March 6 2024.pdf
The First National K12 TUG March 6 2024.pdf
 
Material Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.pptMaterial Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.ppt
 
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
 
3.12.24 Freedom Summer in Mississippi.pptx
3.12.24 Freedom Summer in Mississippi.pptx3.12.24 Freedom Summer in Mississippi.pptx
3.12.24 Freedom Summer in Mississippi.pptx
 
Metabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptxMetabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptx
 
BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...
BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...
BÀI TẬP BỔ TRỢ TIẾNG ANH 11 THEO ĐƠN VỊ BÀI HỌC - CẢ NĂM - CÓ FILE NGHE (FRIE...
 
How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17
How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17
How to Customise Quotation's Appearance Using PDF Quote Builder in Odoo 17
 
Metabolism of lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptx
Metabolism of  lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptxMetabolism of  lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptx
Metabolism of lipoproteins & its disorders(Chylomicron & VLDL & LDL).pptx
 
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
 
LEAD6001 - Introduction to Advanced Stud
LEAD6001 - Introduction to Advanced StudLEAD6001 - Introduction to Advanced Stud
LEAD6001 - Introduction to Advanced Stud
 
Riti theory by Vamana Indian poetics.pptx
Riti theory by Vamana Indian poetics.pptxRiti theory by Vamana Indian poetics.pptx
Riti theory by Vamana Indian poetics.pptx
 
Pharmacology chapter No 7 full notes.pdf
Pharmacology chapter No 7 full notes.pdfPharmacology chapter No 7 full notes.pdf
Pharmacology chapter No 7 full notes.pdf
 
VIT336 – Recommender System - Unit 3.pdf
VIT336 – Recommender System - Unit 3.pdfVIT336 – Recommender System - Unit 3.pdf
VIT336 – Recommender System - Unit 3.pdf
 
Awards Presentation 2024 - March 12 2024
Awards Presentation 2024 - March 12 2024Awards Presentation 2024 - March 12 2024
Awards Presentation 2024 - March 12 2024
 
HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...
HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...
HỌC TỐT TIẾNG ANH 11 THEO CHƯƠNG TRÌNH GLOBAL SUCCESS ĐÁP ÁN CHI TIẾT - HK2 (...
 
THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...
THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...
THYROID HORMONE.pptx by Subham Panja,Asst. Professor, Department of B.Sc MLT,...
 
2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...
 
Least Significance Difference:Biostatics and Research Methodology
Least Significance Difference:Biostatics and Research MethodologyLeast Significance Difference:Biostatics and Research Methodology
Least Significance Difference:Biostatics and Research Methodology
 
3.14.24 Gender Discrimination and Gender Inequity.pptx
3.14.24 Gender Discrimination and Gender Inequity.pptx3.14.24 Gender Discrimination and Gender Inequity.pptx
3.14.24 Gender Discrimination and Gender Inequity.pptx
 

Funded Pensions In Western Europe 2008

  • 1. International Pension Studies Funded Pensions in Western Europe 2008
  • 2. Imprint Publisher: Allianz Global Investors AG, Seidlstraße 24-24a, D-80335 Munich | http://www.allianzglobalinvestors.com | Editor: Dr. Alexander Börsch, Senior Pensions Analyst, Allianz Global Investors AG, E-mail: alexander.boersch@allianzgi.com, Phone: +49 (0) 89 1220 7472 | Contributors: Dr. Alexander Börsch, Allianz Global Investors AG; Dr. Renate Finke, Allianz Dresdner Economic Research; Dr. Martin Gasche, Allianz Dresdner Economic Research; Jordy Peek, risklab; Dr. Jürgen Stanowsky, Allianz Dresdner Economic Research | Layout: volkart:51 GmbH, Munich | Printing: repromüller, Übersee | Closing date: December 5, 2008 | This study was conducted in cooperation with Allianz Dresdner Economic Research. The OECD provided information on the second and third pillars. The entire content of this publication is protected by copyright with all rights reserved to Allianz Global Investors AG. Any copying, modifying, distributing or other use of the content for any purpose without the prior written consent of Allianz Global Investors AG is prohibited. The information contained in this publication has been carefully verified by the time of release, however Allianz Global Investors AG does not warrant the accuracy, reliability or completeness of any information contained in this publication. Neither Allianz Global Investors AG nor its employees and deputies will take legal responsibility for any errors or omissions therein. This publication is intended for general information purposes only. None of the information should be interpreted as a solicitation, offer or recommendation of any kind. Certain of the statements contained herein may be statements of future expectations and involve known and unknown risks and uncertainties which may cause actual results, performance or events to differ materially from those expressed or implied in such statements. 2
  • 3. International Pension Studies Western Europe Preface T raditionally, the pension systems of most Western European countries were text- book examples for the dominance of public the financial assets of European households in international comparison and includes forecasts on the future development of finan- pay-as-you-go pensions. This has changed. cial assets. The third article addresses trends More and more European countries are try- in Western European pension markets and ing to spread the retirement income of their pension asset projections, while the conclud- citizens across a wider base. They have intro- ing article of the first part is concerned with duced new funded occupational and private the effects of a possible application of Solven- pension schemes with the goal to diversify cy II on defined benefit pension funds. The retirement income for future pensioners. second part analyses the pension systems in each Western European country; for the pur- Despite different starting points, almost poses of this study we defined Western Europe all Western European countries have fol- as the EU-15 plus Switzerland and Norway. lowed the trend towards funded pensions. This has taken several forms. Besides the in- The evolution of funded pensions into troduction of new schemes, many countries a crucial element of retirement income in decided to introduce state pension reserve Western Europe has important ramifications funds to back public pension systems and for public policy and the financial industry. strengthen their sustainability. These funds For example, the regulation of funded pen- have grown considerably and are now crucial sions, the effectiveness of plan design, the players in the financial markets. The world- risk management of investments and the wide shift from defined benefit to defined quality of financial products become ques- contribution plans in occupational pension tions that will shape the financial security provision is also taking place in Europe, how- of many future retirees. By creating trans- ever, with a different speed and depth in the parency about the pension system designs respective countries. in Western Europe, this study aims to con- tribute to the discussion on the future of This study is divided into two main parts. European pensions. We strongly believe The first part is comprised of four articles, in- that transparency and comparability are cluding one on the economic impact of ageing the foundations for mutual learning and populations. The second article focuses on best practice sharing. Brigitte Miksa, Head of International Pensions Allianz Global Investors AG 3
  • 4. International Pension Studies Western Europe Content Imprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Western Europe – The Economic Impact of Ageing Populations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The Financial Assets of Private Households – An International Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Trends and Asset Development in European Pension Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Solvency II: How it Could Affect Defined Benefit Pension Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Country Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Austria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Luxembourg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 The Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 UK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 4
  • 6. Introduction International Pension Studies Western Europe Western Europe – The Economic Impact of Ageing Populations Demographic development Chart 1 Western European population [million] in Europe 415 While Western European countries vary con- 410 siderably from one another, they also have a number of commonalities. For instance, 405 in most of Western Europe, the population 400 is expected to stop growing within the next twenty years. It will not be the first time that 395 European societies see a decline in their pop- ulations. The Black Death and both World 390 Wars are two dramatic examples. Indeed, in 385 the past, wars and pandemics led to quickly 2005 2009 2013 2017 2021 2025 2029 2033 2037 2041 2045 2049 shrinking populations. Source: Eurostat In the coming decades, the decline in Western Europe’s population will certainly be at the big picture to make rough estimates of more gradual. Overall population will peak in future GDP growth within a growth account- 20 years. It will then start to decrease, slowly ing framework. Finally, we assess the impact at first and then increasingly faster. The age- of ageing on the Western European pension ing process of Europe’s populations will have business. a significant impact on the makeup of its so- cieties. The proportion of elderly people (i.e. Longer lives, fewer children people aged 65 and over) in the total popula- tion will increase from about 17% today to 30% Across Western Europe, the basic demograph- in 2050. In this publication, we have defined ic trends of ageing and shrinking populations Western Europe as the former EU-15 coun- are to blame for many political reforms that tries, plus Norway and Switzerland. have seen benefits cut – particularly pension benefits – and extended working lives. The un- The present article examines the impact derlying causes of low or falling fertility and of ageing and declining populations on GDP increasing life expectancy are well known. growth. We discuss how the shrinking labour However, the reasons and mechanisms be- force has a negative effect on growth prospects hind these factors are not as well understood. and also address the impact of ageing. First, A number of questions need to be answered, we look at the impact of population decline on among them why women do not have more the labour market. Next, we discuss the quali- children and what can be done to increase ty of labour, the role of education, and the im- fertility. Other open questions include how pact of ageing on productivity. Third, we look fast life expectancy will increase, or whether at whether capital input can offset shrinking it will decrease due to less healthy lifestyles. labour input and shed some light on the ques- tion of how ageing affects an economy’s ability Since there are many possible answers to to innovate. Once we have done this, we look these questions, it has thus far been impos- 6
  • 7. Introduction International Pension Studies Western Europe sible to make any sound scientific conclu- Can ageing societies remain sions. Population development forecasts must therefore rely on assumptions about competitive? future developments.1 For the EU-15 coun- To answer this question, the effects of ageing 1 We have used Eurostat tries, fertility is expected to increase slightly on the economy and its growth prospects must figures for all countries except in France and Ireland, where current be examined. The following paragraphs shed except Norway and high fertility levels are forecast to decrease. some light on this issue. We will identify the Switzerland. For each of Given the lack of scientific evidence on the relationship between demographic change these two countries, we drivers of change in fertility in industrialised and economic growth and discuss its poten- have used the figures countries, it is possible that actual develop- tial impact on Western Europe. and forecasts of national ments will deviate from these assumptions. statistical offices. Demographic development affects eco- Even if fertility in France keeps rising as nomic activity in many areas. Gross domes- it has in recent years and current low levels tic product (GDP), i.e. the sum of all goods remain constant in other countries, the im- and services produced within a given period, pact would barely be noticeable in the near is the result of an application of capital and future. Indeed, it will take many years for labour combined with the effects of techni- such small developments to alter the age cal progress. Clearly, labour force develop- composition of populations. After several ment has an influence on output. It should decades of low fertility, the number of poten- be noted, however, that not only the number tial mothers has significantly decreased, so that an increase in fertility will not have Chart 2 Fertility rates in Western Europe [children per woman] a noticeable impact in the short term. 2.5 A similar argument can be made about 1990 life expectancy. An increase has been fore- 2 2006 cast for all countries in our sample, though it will be higher in some than in others. The highest life expectancy increase for men be- 1.5 tween 2006 and 2050 will presumably occur in Austria, with 7.2 years. For women, life ex- 1 pectancy will increase the most in Belgium, by 6.4 years. We have assumed the lowest increase in the Netherlands, with 3.8 years 0.5 for men and 2.7 years for women. Current national assumptions may deviate from the 0 estimates used by Eurostat. However, even Germany Italy France Spain UK The Nether- Sweden Switzer- lands land if deviating national assumptions were used, changes to the overall picture would be negligible. Chart 3: Old-age dependency ratios [65+-year-olds/15–64-year-olds] 70 The continuous ageing of societies is one 2008 of the consequences of these developments, 60 2050 and is reflected in the old age dependency 50 ratio. It depicts the number of people aged 65 and older per 100 people of working age 40 (15–64 years) and demonstrates that the ageing process varies in different Western 30 European countries. For instance, Spain, Italy and Germany are much more affected than 20 countries like the UK, France or Sweden. 10 0 Germany Italy France Spain UK The Nether- Sweden Switzer- Western lands land Europe Source: Eurostat 7
  • 8. Introduction International Pension Studies Western Europe of workers matter, but also their quality. of the 15-64 age group will differ considera- Education, i.e. the quality of human capital, bly across Europe. Germany and Italy will see is an important determinant of productivity. the sharpest declines. Labour force potential in these two countries will shrink by 25% by Since population development and the 2050. In contrast, Ireland will see an increase age structure of a population affect the use of 15%, the increase in Luxembourg will be and quality of production factors in a number almost 30%, and Sweden’s labour force po- of ways, the impact of demographic change on tential will grow by 3%. All other countries output is difficult to determine. Some simple will have to cope with a declining potential economic models describe these relation- labour force. ships. In this basic accounting exercise, GDP is the product of the number of employed A decline in the potential labour force persons (working population) times the does not mean that the size of the labour output in goods and services per employed force automatically shrinks. This is because person (labour productivity): many people aged 15-64 are not active in the labour market. A substantial number of people are pursuing their education, some GDP = have retired early and others are currently at labour productivity x working population home to raise children or for other reasons. In 2007, the labour force participation rate The working population is a subset of the (i.e. people aged 15-64 who were either em- people aged 15-64 who could potentially work ployed or looking for a job) stood at 74% for (potential labour force) and do participate in men and almost 60% for women. The figures the labour market. for Norway and Switzerland are well above the EU-15 average. Working population = These participation rates can change for participation rate x potential labour force a number of reasons. Developments in the economic cycle are an important influence, This leaves us with: but changes in the legal environment also play a role. Since 1995, the labour force participa- tion rate in the EU-15 has increased by 3.5 GDP = labour productivity x percentage points for men and 10 percentage participation rate x potential labour force points for women. Legislation to increase Labour productivity depends on the avail- ability of capital (i.e. tools and machinery), Chart 4 Development of the working age population aged 15–64 the quality of human capital and technologi- [2005=100] cal progress. All of these items are influenced 105 by demographic development – some more directly than others. Let us begin our analysis 100 with the most obvious variable, the potential labour force. 95 Germany Italy Demographic impact 90 France on the labour market 85 Spain UK The Netherlands How do demographics affect the labour 80 Sweden market? If we assume that the potential Switzerland labour force comprises all people between 75 Western Europe 15 and 64 years of age, we will see some changes throughout Western Europe. 70 According to current population forecasts, 2005 2009 2013 2017 2021 2025 2029 2033 2037 2041 2045 2049 labour force potential will decline by 15% Source: Eurostat, national statistical offices between 2008 and 2050. The development 8
  • 9. Introduction International Pension Studies Western Europe Chart 5 Labour force participation rates of 55–64-year-olds, 2007 [%] men 55–64 90 women 55–64 80 70 60 50 40 30 20 10 0 EU-15 Denmark Ireland Spain Italy The Netherlands Portugal Sweden Norway Belgium Germany Greece France Luxembourg Austria Finland UK Switzerland Source: Eurostat retirement ages and an improved economy policies can certainly alleviate its most have contributed to that development. dramatic effects. This demonstrates that a declining potential labour force does not automatically mean For instance, extending working life and that fewer people are available on the labour closing loopholes that lead to early retire- market. Participation rates could increase, ment are two possible measures that could just as unemployment could decrease. be implemented to protect the labour mar- ket from a declining population. Another is About 13 million EU-15 citizens are current- increasing the willingness to join the work- ly unemployed, which represents the entire force by offering childcare facilities for young combined potential labour force of Belgium parents and/or more flexible working hours. and Greece. With unemployment rates be- Taxes play an important role, too. If taxes tween 2.5% and 4%, Norway and Switzerland on a couple’s secondary income are too high, have reached almost full employment. Given the incentive to work is low, as experience in the high participation rates in these two coun- the Netherlands has shown. tries, changes in the potential labour force will have a more direct impact on the availability Even if the total number of workers does of labour. In other EU-15 countries, there is still not drop by as much as some may fear, there some room to manoeuvre. For instance, la- is no denying that the workforce is ageing. bour force participation rates for those aged In Western Europe, the current median age 55 to 64 can increase substantially in most is about 40 years; it is expected to increase EU countries. Currently, only Sweden comes by roughly 7 years by 2050, as will the medi- close to Switzerland and Norway. an age of the labour force. Until now, there has not been any empirical evidence on how If it were possible to increase labour force such a process will affect productivity. participation across EU-15 states to rates as high as Sweden’s, the demographic impact on The role of education the labour market could be cushioned con- siderably. In fact, the expected labour force As already mentioned, the quality of the decline of 15% could be reduced by half. Even labour force plays an important role – espe- if some aspects of demographic development cially in countries with decreasing popula- cannot be changed in the short term, smart tions. In Western Europe, Germany and Italy 9
  • 10. Introduction International Pension Studies Western Europe in particular must cope with pronounced pop- To assess the development of productivity ulation decline. In these countries, and also in in an economy, the weight of different jobs Portugal, Greece and Spain, efforts must be in the overall workforce is important. Mental made in the realm of education to counter abilities, such as problem-solving skills when the effects of ageing and population decline. faced with new challenges, logic and the The decline in the absolute number of po- ability to understand complex topics, seem tential workers must be countered by an in- to decrease with age. Verbal abilities and crease in the productivity of each individual. communication skills, on the other hand, tend to improve with age, as experience plays To achieve this, national school systems are a more important role. The importance of one of many factors that must be examined. different combinations of these abilities vary, Certainly, reducing the number of school depending on the industry. For older em- dropouts is critical. However, the education ployees, changes that are the result of rapid of the workforce as a whole must also be technological development pose a particular considered. Lifelong learning should not challenge with regard to productivity, as they only be a catch phrase, it must become an make experience acquired over decades embedded concept in companies’ personnel irrelevant. For this reason, industries that departments. Giving the increase in retire- are characterized by such change will suffer ment age, workers aged 55 and over will have more from an ageing workforce than others. to spend a decade or more in employment before they can access their pensions. Hence, There are very few empirical studies that even for these experienced workers, continu- demonstrate these dynamics, and those that ing education will become increasingly com- are currently available do not provide clear mon. The depreciation of human capital in answers to the critical questions. Most stud- a shrinking labour force must be prevented ies conclude that productivity declines with (Ludwig, Schelkle, 2007). age. However, it is unclear at what age the de- cline sets in and whether it is significant. This Age and productivity leaves us with the following results: While a decline in productivity due to ageing is pos- The development of labour productivity is sible, it appears that it will not be substantial. extremely important for an economy’s long- We must also consider the possibility that the term growth prospects. Ageing populations deterioration of productivity can be countered and workforces require that answers be by further education and training. There is found to the question of how productivity ample evidence that employees can acquire is affected by ageing. In rapidly ageing coun- new skills at any age. If companies keep this tries like Germany and Italy, this question in mind, they may be able to maintain pro- is high on the agenda. The fact that certain ductivity despite ageing societies. This is par- mental abilities decrease after early adult- ticularly true in sectors where experience is hood is one of several aspects that are un- important. disputed. However, this does not mean that produc- Demography and the use tivity decreases as workers age. Experience, of capital which increases with age, is also important. A good balance between mental ability and When the supply of labour declines for demo- experience leads to the best results. If we look graphic reasons, the importance of capital in at purely physical work, the picture is slightly maintaining economic performance grows. different, as productivity undoubtedly decreas- Capital must be used to substitute labour es with age. In Western Europe, however, ever and increase the productivity of the remain- fewer jobs rely exclusively on physical abili- ing jobs. In other words, investment in real ties. Even in the automotive industry, it has capital will gain importance. In ageing West- not been proven that younger assembly line ern Europe, capital investment is influenced teams are more productive than their older by the need to substitute labour, which will counterparts. While younger teams tend to become more expensive. Production will be- be faster, they also make more mistakes. come even more capital intensive. The neces- sary increases in productivity will be achieved 10
  • 11. Introduction International Pension Studies Western Europe by investing more in human and physical cap- the propensity to innovate seems to in- ital – increasing capital demand even more. crease until age 40 a positive correlation between age and innovations can be found in younger populations. Chart 6 shows that Demography and techno­ such a relationship is not contradicted by logical progress the data, even though it does not prove it. At least an increase in the share of elderly, here Technological progress is an important factor the number of people aged 45 to 64, corre- for economic growth. It results in new products lates positively with the number of patents. or new, more efficient ways of producing exist- ing products. Innovations are frequently the Ageing and economic growth result of technological progress. For Western European economies, which trade a great deal Having addressed all of these considerations with the rest of the world (and of course with regarding future labour force development, each other), technological progress is one of productivity and technological progress, we the pillars of growth. Western Europe can only can now have a closer look at Western Europe’s successfully compete on global markets with growth prospects. The frame of reference for very advanced products. If ageing were to in- this task is the simple growth accounting terfere with countries’ ability to innovate, their framework introduced above. GDP growth international competitiveness would face can be broken down into productivity growth a direct threat. Countries such as Germany, and employment growth. The latter depends which is a very strong exporter of highly so- on the growth of the working age population phisticated machinery and cars, would suf- and changes in labour utilization (i.e. labour fer if it could not maintain its competitive force participation). For example, the Euro- advantage over foreign competitors. Assess- pean Commission and the European Central ing the effect of ageing on technological Bank (ECB) conducted this exercise, and the progress is therefore critical. result of our own research is in line with their findings. It is very likely that GDP per capita It is a commonly held thought that a soci- growth will decline over the next four decades. ety’s ability to innovate suffers when it ages. However, this decline will not be dramatic This rests on the assumption that creativity (Table 1). decreases with age. In fact, recent empirical research has shown that age tends to correlate negatively with the propensity to innovate Chart 6 Share of people aged 45–64 and number of patents (Schneider, Ragnitz, 2007). The likelihood of per 1 million inhabitants in the US a successful innovation (new product, major process or product improvement) peaks at an 350 0.26 average age close to 40. Afterwards, the likeli- hood begins to decrease, dropping to lower 0.24 than at the age of 30 when the average age of 300 0.22 personnel is over 48. Hence, there is quite a Share of people aged 45-64, long time span with fairly high innovation po- right scale [%] 0.20 tential. What is more, empirical results sug- 250 gest that a good balance of older and younger 0.18 employees must be reached to achieve high innovation potential. 200 0.16 Number of patents per US data on patent activity shows a rather 1 million inhabitants, 0.14 left scale positive correlation between age and innova- 150 tions. This means that even if age affects the 0.12 likelihood to innovate negatively, this seems to take effect only at higher ages – at least com- 100 0.10 pared to the average age of the workforce. 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Given the projected increase in the age of the Note: Patents are defined as Utility Patents granted to US inhabitants workforces in Western Europe, a strong neg- Source: US Census Bureau, US Patent and Trademark Office ative impact is unlikely to materialise. Since 11
  • 12. Introduction International Pension Studies Western Europe Table 1 Economic growth scenarios for Western Europe [average annual changes in %] Labour Change in Working age Total GDP Real GDP productivity labour force population population per capita Past: average 1 .1 0 .8 0 .4 0 .5 2 .3 1 .8 1995–2005 Base case 2011–2030 1.7 0.4 -0.3 0.1 1.8 1.7 2031–2050 1.5 0.2 -0.5 -0.2 1.2 1.4 Pessimistic assumptions 2011–2030 1 .2 0 .1 ­0 .3 0 .1 1 .0 0 .9 2031–2050 1 .1 0 .0 ­0 .5 ­0 .2 0 .6 0 .8 EU commission assumptions 2011–2030 1 .8 0 .2 ­0 .3 0 .1 1 .7 1 .6 2031–2050 1 .7 0 .1 ­0 .5 ­0 .2 1 .3 1 .5 Notes: Western Europe = EU 15, labour force participation: share of employed persons of working age population Source: ECB, Eurostat, European Commission, own calculations The scenarios have two main results: EU policies currently aim to achieve pre- • As the table shows, growth will be affected cisely these goals, as summarised in the Lis- dramatically only under very pessimistic bon agenda. Norway and Switzerland have assumptions. In our base case scenario, similar goals with respect to growth. Indeed, which is slightly less optimistic than the policies across Western Europe are geared European Commission with regard to towards increasing labour force participa- productivity developments, but more op- tion with higher retirement ages or better timistic on labour force participation, in childcare facilities. They also aim to increase the medium term GDP per capita growth labour productivity with efforts to raise edu- will remain roughly at the level seen in the cational standards and foster research and last decade. Towards the end of the fore- development. While progress towards reach- cast period, growth will slow down as the ing these targets has not been consistent change in the working age population in all countries, we expect all of Western becomes more pronounced. Europe to make substantial progress within the next decades. Although Europe is ageing, • The table also demonstrates the impor- it will remain an economic force to reckon tance of maintaining high labour produc- with in the future. tivity. If the increase were to fall below the past average of one percent, GDP growth would be severely impeded. In fact, GDP Consequences for pensions growth above one percent would be diffi- and pension investments cult to obtain. An increase in labour force participation is another important pre- What does all of this mean for pensions? condition for economic growth to stay at First, the prospect of decent economic levels close to those reached in the past. growth rates means that there is no need 12
  • 13. Introduction International Pension Studies Western Europe to fear the future. The consequences of rule out some major European countries such ageing can be dealt with. Second, public, as Italy, Spain, and Germany, among many pay-as-you-go financed pension systems others. However, as the above analysis has will encounter difficulties as a result of the shown, an ageing society does not necessarily changing ratio of people over 65 to the 15-64 face a bleak future. age group, which finances pensions. This ratio, which is commonly referred to as the The move towards a pension system old age dependency ratio, will increase from that is funded to a much higher degree than 27 today to 52 in 2050. past systems can be seen as a reaction to the changing needs of an ageing society. To suc- This means that in the future, there will cessfully offset the decline in labour through be 52 elderly people for every 100 people of investments in physical and human capital, working age, compared with 27 today. Still, an economy needs a great deal of capital. the outlook for public pensions would be Across Western Europe, the need to adapt much worse if ageing automatically meant to demographic change varies significantly. economic decline. This is not the case, as in- The situations in Sweden, France and the UK comes are expected to keep growing. Wages, differ considerably from Germany or Italy. which finance public pensions, will not be The need for reform is highest in the coun- affected that much by ageing. However, age- tries that are ageing the most quickly and ing will have a large impact on the viability have not yet sufficiently reacted by adapting of public pension systems. their pension systems and economies to the demographic conditions they will face The most common reaction to this fore- in the future. seeable development continues to be de- creasing the generosity of public pension From an investment point of view, even systems and strengthening private pension an ageing Western Europe seems like a provision. The latter is usually of a funded promising place to invest. The demand for type. People save money while working and capital to finance the investments required receive the proceeds of their savings after to offset the decline in labour will grow. In retirement. While this arrangement exposes some countries, notably Germany, this proc- them to investment risk, pension asset man- ess has already begun or will start sometime agers do their best to keep this risk manage- soon. In the end, return on investment and able. They must continuously ask themselves the associated risks determine whether or where the best possible investment can be not an investment is appropriate. Even if made. If ageing societies were doomed to higher returns can be expected in emerging slow growth, stagnation or eventual decline, economies, these also entail higher risk. the only answer would be in young and/or Among others, exchange rates and political fast growing economies. This concept would risks should be considered. Dr. Jürgen Stanowsky, Allianz Dresdner Economic Research 13
  • 14. Introduction International Pension Studies Western Europe The Financial Assets of Private Households – An International Comparison Introduction above the level Japanese households had put aside (EUR 9.7 trillion). However, because of Over the past decade, Europe has seen many the difference in size of the regions, an anal- pension reforms that have paved the way for ysis of the absolute values does not correctly a shift from pay-as-you-go to funded pension reflect the ratios. Taking financial assets as a systems. These reforms have led to a strength- percentage of gross domestic product (GDP), ening of the second pension pillar in most we find that wealth in Western Europe, which countries and highlighted the importance amounts to about 220% of GDP, is significant- of third pillar provision, as replacement ly lower than in the other two regions. In 2007, levels in the first pillar have been cut back. the United States’ monetary wealth of private Especially in Continental Europe and EMU households was 328% of the country’s GDP. (European Monetary Union) countries, the In Japan, it stood at 310%. In contrast, Eastern introduction of tax-favoured savings prod- Europe lagged way behind, reaching only ucts for retirement has triggered a build-up 73% of GDP. process in this segment. The new members of the EU in Central The increasing importance of the pension and Eastern Europe (CEE) showed the most segment is reflected in the financial assets dynamic development among the regions in of private households. In many countries, the review. Over the past five years, they have seen 1 Former EU member proportion of pension products has increased annual growth rates of almost 15%. Western states plus Norway and in private household portfolios in recent years. Europe recorded annual growth rates of 7.2% Switzerland, not including To a large extent, the differently structured on average after 2002. That year, an economic Luxembourg. portfolios in European countries can be viewed upturn laid the foundation for resuming finan- 2 Conversion at 2007 as a result of differing pension systems and cial asset build-up in the household sector, rates. saving behaviours. This study generally fo- cuses on a narrow definition of retirement Chart 1 Financial assets of private households [2000=100] assets (i.e. pension funds and life insurance 260 reserves), as it is difficult to earmark other financial assets as destined for retirement Western Europe 230 income. However, analysing the total finan- EU15 cial wealth of private households is a worth- EMU 200 while endeavour, as most financial products USA can be used to top up retirement income. Japan 170 CEE 140 Trends in financial asset development 110 At the end of 2007, financial assets in West- 80 2000 2001 2002 2003 2004 2005 2006 2007 ern Europe1 reached EUR 25.8 trillion2. This was around 15% below the US level (EUR 30.8 Note: Europe excluding Luxembourg Source: Central banks, statistical offices, Eurostat trillion) and more than two and a half times 14
  • 15. Introduction International Pension Studies Western Europe which had ended abruptly with the stock Chart 2 Private households’ financial asset structure, 2007 [%] market crash at the beginning of the new millennium. In the US, financial assets even 100 3.4 3.6 3.5 4.4 6.4 increased by 9.3% p.a. after the downturn Other 10.9 had torn an exceptionally large hole in house- 27.4 30.9 25.3 Insurance/ 80 34.7 hold portfolios because of the high affinity pension funds to capital market investments in the US. In 34.5 10.4 Shares/ mutual funds contrast, Japanese households, with their low- 60 29.4 9.5 Bonds risk and hence low-yield portfolios, recorded 26.0 2.4 40.6 Bank deposits only a moderate increase of 2.7% per year. 40 7.9 6.1 However, the investment environment 45.8 50.5 changed in 2007. Growth rates dropped to 20 8.8 29.8 31.7 Note: Europe excluding half the former average at the beginning of 16.3 Luxembourg the downturn in housing markets and due to 0 economic uncertainties in many countries. Western EMU CEE USA Japan Europe The impact of the subprime crisis on financial Source: Central banks, statistical offices, Eurostat markets worldwide also played a major role. In 2008, indications have thus far shown that the growth of household wealth will slow down ments, but this is due to the privatisation considerably. Assuming a stock market down- process in some Eastern European countries. turn of 30 % year-end 2008 on year-end 2007 financial wealth in all major regions will even To a certain extent, bank investments in decrease. both the US and Europe have seen a revival, which is the result of a heightened desire for In the US, the crisis will have an even larger safe investments. Nevertheless, US household impact than in Western Europe, EMU coun- portfolios contain only 16% bank products. tries and Japan. This is because the disparate In Western Europe, the bank share is almost performance described above stems largely twice as high as in the US; in Japan, the figure from differing household investment patterns is more than three times higher. In CEE coun- in the respective regions. Compared with most tries, the share of bank products is almost Europeans and the Japanese, American house- three times as high as in the US, which can holds show a strong affinity to investments in be explained by a very low average income. stocks and mutual funds, which bears both op- Usually, the portfolio mix initially comprises portunities and risks for performance in the less risky and liquid assets (mainly bank de- overall investment portfolio. posits) and shifts towards capital markets and more sophisticated products as income About 40% of US household portfolios is and wealth increase. invested in equity and investment assets; in 1999, this share peaked at almost 50%. Direct Chart 3 Share of bank products in household financial portfolios vs. investment in corporate stocks is no longer GDP per capita, 2007 [EUR] as attractive as it was at that time. Indeed, on balance, US households have reduced their 70% exposure to equities. In Western Europe, the 60% portion of equity and mutual fund shares Gr CEE Jap A currently stands at 26%, after peaking at 30% 50% in 2000. 40% Other Western Eurpean countries Nor 30% As in the US, the increase in the overall fig- ure in many European countries stems from 20% valuation changes over the course of positive US 10% stock market performance up to 2007. It is not the result of new investment flows, as 0% households began to invest more cautiously. 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 [EUR] The household portfolio mix in CEE contains Source: Central banks, statistical offices, Eurostat a surprisingly high portion of equity invest- 15
  • 16. Introduction International Pension Studies Western Europe Insurance and pension products also hampered insurance/pension asset build-up 3 In this context, the term make up a major portion of household finan- in Greece, where only 3% of financial assets pension fund implies all cial assets. These have benefited from strong- are allocated to this segment. This figure is types of investment in fully er occupational and private pension provi- far lower than in all other countries. funded pension schemes. sioning. In Western Europe, the share of these The investment vehicles assets as part of household financial wealth Nevertheless, in most Western European have different features has increased by 6.5 percentage points over countries, growth in the insurance/pension and names in some coun- the last decade. Moreover, in most CEE coun- segment outperformed total financial asset tries. Wherever they are tries, capital funded pension arrangements growth in previous years. Again, this demon- subject to regulation by were introduced as mandatory plans. This strates the importance of insurance and pen- the insurance supervisory gave an enormous boost to this investment sion products. Below average growth can be authorities, they are record- segment in Europe’s emerging markets. Even seen in the mature pension markets of Swit- ed for statistical purposes in the US, with its traditionally stronger capi- zerland and Denmark. It can also be observed in the “Insurances/Pension tal funded pillar, improvements to the sys- in countries like Spain, where pension reforms Funds” category, in accord- tem are an ongoing process. If IRA (Individual have yet failed to materialise. ance with ESA ’95. Retirement Accounts) assets are also taken into account, which are invested in other Chart 4 Gross financial assets in Europe, 2007 product types such as mutual funds, bank [% of GDP, private households] accounts, insurance products or brokerage accounts, the share of pension assets in the Switzerland 373 US further increased from an already high UK 295 level of 35% in 1997 to 40% ten years later. The Netherlands 280 Belgium 253 Italy 240 European countries Denmark Portugal 235 223 Western Europe 218 The Western European figure for financial EMU 202 assets combines a variety of investment pat- Ireland 193 terns and levels of wealth. The four biggest France 189 Germany 188 economies combine two-thirds of total finan- Spain 182 cial assets, which amounted to EUR 25.8 trillion Sweden 165 in 2007. As the most populous country with Austria 152 Greece 139 the highest GDP, Germany ranked second be- Finland 112 hind the UK. In terms of gross financial assets Norway 103 relative to GDP, Germany is in a much lower 0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 375 position (188%) than the UK, where 295% was registered in 2007. With 373%, Swiss house- Chart 5 Share of pension and insurance assets in the total financial assets holds are the wealthiest in Europe, and are of private households, 2007 [%] also ahead of US or Japanese households. The Netherlands 58 These states are followed by the Nether- UK 55 lands, Belgium and Denmark, all of which Denmark 43 Switzerland 42 have stronger funded pension systems than Ireland 41 countries with traditionally more extensive Sweden 40 pay-as-you-go pension systems such as Ger- France 38 Norway 36 many, Spain or Austria. The latter countries Western Europe 35 all rank in the lower part of the listing. Pre- EMU 27 sumably, the different pension systems have Germany 26 Belgium 24 an impact on asset formation and can par- Finland 21 tially explain the differing trends and finan- Portugal 18 cial asset levels in European countries. The Austria 18 Italy 17 share of insurance and pension fund assets3 Spain 14 as part of total financial assets reflects the Greece 3 importance of the segment in the respective 0 10 20 30 40 50 60 countries. The Netherlands, the UK, Denmark Note: Europe excluding Luxembourg and Switzerland are at the very top. Very high Source: Central banks, statistical offices replacement rates in the first pillar have 16
  • 17. Introduction International Pension Studies Western Europe Very high growth rates of pension / insur- Chart 6 Insurance/pension asset growth vs. total financial asset growth, ance assets compared to total financial asset 2001–2007 growth can be observed in Belgium. This has been triggered by a new occupational pen- 16 sion scheme (“Vandenbroucke” law), estab- 14 Insurance/pension growth CAGR [%] lished in 2004, but also life insurance products Irl saw a strong development. Greece also saw 12 B Gr high growth rates in pension/insurance as- N 10 I F sets. This is likely to be the result of the gen- SP 8 erally low level reached up to now, which rep- NL US S Dk UK Fin resents high potential to catch up. Ireland is 6 Ger A another country where performance is high, 4 as it belongs to a group of countries that have CH a very basic first pillar only. Low replacement 2 J rates must be topped up with occupational 0 and private pension provisioning. The extreme- 0 4 6 8 10 12 14 16 ly dynamic growth of the overall Irish economy, Financial asset growth CAGR [%] which has shown the highest average growth Source: Allianz Dresdner Economic Research rates in Western Europe in the last decade, has given households the financial leeway they need to save for retirement. The different behaviours and influences from differing regulatory, statutory and fiscal Other reasons for the varying development arrangements have led to strongly varying of total financial wealth include the general trends. Depending on investment preferenc- propensity to save and differences in invest- es, the stock market boom in the late 1990s ment behaviour itself. As already shown for had a number of impacts on portfolios. In the different regions of the world, risk aversion most European countries, financial assets levels differ tremendously. Greek households grew rapidly between 1996 and 2000. This hold the biggest share of bank products. This was related directly and indirectly to stock risk aversion may be due to a lower level of market gains in particular, which affected income and economic development. As one both the valuation of existing stockholdings of the wealthier countries, portfolios in Aus- and attracted massive new inflows of funds. tria are geared heavily towards security, with almost 50% invested in bank deposits and The boom gripped the Finns, Swedes and another 9% in debt securities. Spain and Greeks in particular, generating strong growth Germany are also among the countries that between 1996 and 2000 – and losses in the invest conservatively compared to other subsequent downturn. Still, together with European countries. Spain and Norway, these countries experi- enced the highest asset gains. At the end of Savings ratio Savings ratios are often used as an indicator of savings behaviour . This can be misleading for cross­ country comparisons, as contributions to pension schemes are not counted as savings . In contrast, the accumulated savings of pension assets do count as financial assets . The savings ratio is usually calculated as the difference between income and consumption . Contributions to pension schemes and investments in other financial assets, such as bank deposits, are treated differently . While the former is recorded in national accounts as a household expense that reduces saving potential, the latter is viewed as saving . However, since contributions to pension schemes increase financial wealth, countries with large funded pension systems often show low savings ratios, but high finan­ cial wealth (as share of GDP) . This puts the very low savings ratio of UK households compared with the higher ratio in Germany, for instance, into a more realistic perspective . See also: Eurostat, Savings rates in Europe, Statistics in Focus, 33/2002. 17
  • 18. Introduction International Pension Studies Western Europe 2007, their wealth was about one and a half lead to higher asset valuations in the medi- times higher than at the beginning of 1997. um and long term. In turn, this will provide a In contrast, during this period Belgium and partial substitute for saving. This correlation Germany registered respective increases of may be one of many reasons for the decreas- only 50% and 60%. By 2005, all countries that ing savings ratios that were observed in most had suffered absolute losses of wealth passed European countries until the beginning of the their previous wealth peaks. And as a result new millennium. For the projection period, of favourable capital market developments, we have assumed a share performance of 7% they further increased their financial assets p.a. from 2009 onwards. until 2007. In 2008, the financial crisis that resulted from the subprime crisis in the United Financial asset projection States has put a burden on stock markets. through 2020 The high 2007 year-end figures are unlikely to be reached by the end of 2008. Our fore- Moving forward, we expect the acquisition casts were undertaken in the third quarter of financial assets to progress dynamically. of 2008 and we have assumed that stock In many European countries, the develop- markets lose 30% in 2008. These perform- ment of monetary wealth will be driven by ance figures also influence the assets under efforts to provide for retirement. This will not management of investment funds. only be the case in countries with already strong funded pension systems (such as the Investments will flow into a wide variety of UK, the Netherlands and Switzerland), but product categories. A precise product-specific also in states where reforms to public pay- forecast or econometric estimate is virtually as-you-go systems will lead to lower pension impossible for a longer period, as preferences levels. Particularly in these countries (such as for particular investment vehicles may depend Germany, Italy and Austria), people are grad- on factors that are difficult to predict, such as ually learning to accept the need for supple- legal or tax circumstances and interest rate mentary private provision and are building developments. For this reason, our assump- up capital accordingly. Although this process tion on asset allocation is based on long-term will develop differently across European coun- historical structural shifts. These are driven tries and depends on awareness and the by rising incomes and personal wealth, which progress of reform, sales of products for old- lead investors to higher performing, riskier age provisioning are likely to be very suc- products. Although stock market volatility cessful in the coming years. during this decade has reinstated the security aspect, the basic change in investment be- Moreover, the need for personal pension haviour with increasing income is likely to provision will encourage broader sections of remain stable. the population to save beyond state-incentiv- ised pension schemes. In most countries, our In light of these patterns, countries with projection therefore assumes a slightly high- higher portions of direct or indirect exposure er savings rate than in the past. However, the to equity markets (through mutual or pension ratios will barely get back to the levels of the funds), such as the UK, Sweden, Finland, Ire- 4 This growth rate differs early 1990s. Additional retirement saving will land or Spain, will see higher growth in house- slightly from that in the likely replace other precautionary savings hold financial assets than countries with a following article on pen- efforts and the increasing number of elderly more conservative investment approach or sion assets. This is due to people will reduce their personal savings smaller funded pension systems. On average, some classification dif- efforts as they retire. we expect the financial wealth of Western ferences in the financial European households to increase by 4.4% p.a. flow statistics of national The increase in wealth is driven not only accounts and the specific by savings, but also by asset valuations, as Total financial assets will therefore increase pension statistics we used the development of financial assets has dem- by 75% until 2020, reaching almost EUR 45.3 for the market analysis. onstrated in past decades. Stock market per- trillion. The strongest growth will be registered One major difference is formance also represents an important part in the area of insurance and pensions (5.4%)4. that non-life insurance of the increase in monetary wealth. Rising By 2020, the importance of these products in products are included in investment in equities and equity funds will household portfolios will gain 3.5 percentage the financial accounts. 18
  • 19. Introduction International Pension Studies Western Europe points. Above average growth will also be ob- Chart 7 The financial asset structure of private households, 2007–2020 served in the shares and mutual fund segment (4.6%). This will extend their portfolio share 100 3 3 by roughly one percentage point. The main 3.4 3.6 Other losers in this process will be bank products. 27.4 32 Insurance/ 80 34.7 39 pension funds In Continental Europe, particularly in coun- Shares/ tries that belong to the monetary union, growth mutual funds 60 rates in the insurance and pension segment 29.4 Bonds 26.0 31 are slightly higher (5.6%) due to emerging pen- 27 Bank deposits sion saving programs. With its above-average 40 7.9 6.1 growth rate, the UK market is not included. 5 7 In EMU countries, financial assets will grow 20 31.7 by only 4.3%, amounting to EUR 30.9 trillion 29.8 26 27 Note: Europe excluding in 2020 from EUR 17.8 trillion in 2007. Luxembourg 0 2007 2020 2007 2020 Prospects for the long-term development Western Europe EMU of financial assets are quite good, as growth Source: Central banks, statistical offices, Eurostat, Allianz Dresdner Economic Research rates are expected to be higher than GDP growth. However, it should be noted that the financial turbulence of 2007/08 is yet again At the same time, introducing fully-funded putting individual investors and long-term pensions in industrialised nations has be- savers in capital market products to the test. come more pressing than ever. Explanatory notes Financial assets The household sector’s financial assets are calculated in the financial flow statistics provid- ed by central banks or national statistical offices. The aggregate financial account shows by whom, on what scale and in which form financial resources have been made available in an economy. The system is aligned to the “European System of Accounts” (ESA), which was made binding in the European Union in 1999. Its aim is to provide a consistent set of criteria with which all economic sectors and activities can be defined. Insurances and pension products comprise one product group in the financial accounts. In this category, investment vehicles are recorded that are subject to regulation by insurance supervisory authorities, in accordance with ESA ’95. These include all types of investment in fully-funded pension schemes and insurance products. Prepayments of insurance premi- ums and reserves for outstanding claims are also included in this segment. The values are technical reserves. Insurance reserves and pension fund assets are not separated for all countries. This means that non-life, life and pension assets are shown in an aggregate fig- ure in the analysis of financial assets. This figure differs slightly from the definition in the “retirement asset” part of the study (see next article). Projections While accruals in financial assets can be traced back to valuation changes and flows, flows come from savings and contributions from other sources. As far as saving is concerned, assumptions must be made on the development of disposable income and savings rates. For disposable income, an increase in line with nominal GDP growth has been assumed. The growth forecasts for real GDP and inflation in the individual countries up to 2020 are based on Allianz Group Economic Research projections. The data on savings rates up to 2009 are sourced from OECD statistics; constant or slightly increasing savings rates have been assumed for the respective countries. 19
  • 20. Introduction International Pension Studies Western Europe Particularly with regard to allocation, assumptions are difficult to make, as preferences for special types of investment depend on interest rate trends or legal or tax conditions, for instance. Inflow allocation to the various financial instruments has therefore been based on the average behaviour of the past 10 years. Allowance has further been made for the likelihood of additional funds being channelled into private retirement provision in any one country, insofar as there are newly introduced private pension plans that are incentivised by the government. Dr. Renate Finke, Allianz Dresdner Economic Research 20
  • 21. Introduction International Pension Studies Western Europe Trends and Asset Development in European Pension Markets Reforming public pensions Nevertheless, almost all countries have trimmed their public pension systems to Western Europe’s pension systems have varying degrees and increased the retirement changed continuously and considerably. age to strengthen the sustainability of their For the most part, reforms of the last decade public pension systems. Countries like Swe- were triggered by the insight that ageing den, Austria and Italy have established a very Western European populations would place strong link between contributions and bene- an unbearable burden on the public pension fits in the public pillar. They have introduced a systems in place in the medium and long term. notional defined contribution system in which This is because the ratio between contributing contributions are recorded in notional indi- employees and retirees will worsen, in some vidual accounts and benefits depend on the countries dramatically. The degree of change accumulated sum and cohort life expectancy. and the depth of reform have differed across Europe. This is hardly surprising, as the pen- Despite these reforms, Western Europe’s sion policies of Western European countries public pensions are still very generous in have been based on very different foundations. a worldwide comparison. Some European countries show exceptionally high replace- Western Europe’s public pension policies ment rates, which are defined as the ratio of are largely based on two different systems. post- to pre-retirement income. In Italy and Bismarckian systems comprise public pen- Portugal, the net replacement rate for aver- sions that provide earnings-related benefits age earners is around 90% of pre-retirement and aim at maintaining income in retirement. income. In Luxembourg, Spain and Greece, In contrast, Beveridgean systems mainly aim it is 100% or more. This dominating public to prevent poverty, often through flat-rate pillar will have a strong impact on public systems. Austria, Belgium, France, Germany, finances in the future, which will influence Italy and Spain belong to the former group, the need for pension system reform. while Ireland, the Netherlands and the UK are examples of the latter. Mixed models can The Allianz Dresdner Reform Pressure Gauge be found in the Scandinavian countries and summarises the effects at work, compares and Switzerland. Since Bismarckian systems are illustrates the sustainability of pension systems associated with higher public pension expe- and the need to reform. It includes the likely ditures, they have also faced a much greater effects of reforms already initiated. In so doing, need for reform. Another factor that has de- it assesses the future sustainability of pension termined the urgency of reform has been a systems and shows that reform pressure is widely differing demographic outlook from highest in Greece. Generally, countries with country to country. While Spain, Italy, Por- very high replacement rates and underdevel- tugal, Greece and Germany must cope with oped funded systems are under the highest strongly ageing societies, populations in reform pressure, as they will face dramatic Switzerland, the Netherlands, the UK, Ireland increases in public pension expenditure in the and Scandinavia are not ageing quite as future. Portugal, Spain and Luxembourg face dramatically. this very situation. For Sweden, the UK, Den- mark and the Netherlands, the Pressure Gauge 21