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Challenges posed by the ageing EU population for the financial sector - Economic and monetary challenges
Could a standardised, low cost pension with a passport help the retirement problem in Europe?
By Warland Philip - Head of Public Policy, Fidelity Worldwide Investment
All European Governments are faced with ageing populations, increases in life expectancy, state-provided pensions which in many cases provide too little income for retirees, and pressure on their fiscal budgets.
Another important trend is the slowly rising numbers who are self-employed, an average of 14% of the workforce across Europe. These workers cannot take advantage of employer-led systems, usually the most effective in private provision, nor will they get the boost of any employer contribution.
Where employers do provide schemes with defined benefits they are being challenged by low interest rates, which impact on their perceived solvency, and regulatory pressure to take on more low yielding assets, sometimes leading to a search for higher-yielding, riskier assets to make up the balance.
These are the reasons why private provision needs to increase over the next decades, but the employer-led provision will increasingly be in defined contribution.
Into this landscape the Commission has initiated a discussion about a passportable individual pension, the PEPP. Such a product would be easy to define and produce so long as it begins with the UCITS model which has strong risk and control rules, an easy to operate authorisation and passporting mechanism, and has a number of low- or no-tax jurisdictions. Such a product will not solve the problem, but it will help with the self-employed and also help with the increasing calls from multi-national companies for pensions which can follow their mobile employees.
Tax will be a challenge, but UCITS already have to handle specific country requirements on tax, there just needs to be some standard protocols agreed across Europe.
Much has already been done by individual Governments to manage this issue, particularly by raising pension ages, but more will be required of the private sector, and in that the PEPP can play a part.