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Challenges posed by the ageing EU population for the financial sector - Economic and monetary challenges
Supporting Europeans meeting their retirement goals
By Stenning Tony - Head of EMEA Retirement and Retail, BlackRock
In 2015 BlackRock surveyed 13,000 European savers across 8 countries on their approach to saving. We have drawn three key conclusions for the retirement market: more than half of European household assets are held in cash; professional advice is a key element driving willingness to think long-term and hence invest; and efforts to simplify the advice regime are needed to give Europeans the tools for effective retirement planning. Less than half of Europeans have ever sought advice from a professional and this has a profound impact on their long-term wealth accumulation.
Retirement provision across Europe is patchy. In many countries people depend on the state for retirement support, particularly the self-employed. Given dramatic increases in longevity this trend is unsustainable. It is key that Europeans invest more and start earlier to meet their goals for retirement. Policymakers should focus on equipping savers with tools to help them achieve these goals. This means making effective use of income today to generate sufficient income tomorrow.
Savers need a new framework for advice and guidance to ensure that they have the support to invest constructively. This framework should include a minimum standard of impartial guidance and consistent qualification standards for advisers. Investment isn’t just about an adequate income in retirement. Too many individuals can’t manage their monthly budget and do not have enough savings to meet ongoing lifetime needs, such as paying off debt or saving for a home. Increased saving is unlikely to translate into greater investment without improved access to help to manage these objectives. Individuals need engaging, consistent and standardised guidance to allow them to combine their sources of potential income well in advance of retirement and take informed decisions.
It is key that Europeans invest more and start earlier to meet their goals.
The development of low cost, simple, easy to access products that provide solutions to meet individuals’ retirement income needs will further improve savings. Simple, cost-effective and transparent personal pensions can play a key role in developing a savings culture and allowing individuals to prepare for retirement. We recommend supporting these initiatives with a simplified guidance regime setting out a safe harbour within which governments, regulators, industry and the third sector can provide a consistent set of core messages. Perhaps most fundamentally, investor protection must not be just a point-of-sale principle. Savers and their capital must be treated fairly throughout financial markets.
Finally, pension funds should be enabled to rediscover the benefits of investing in long term, illiquid assets such as infrastructure. Such investments complement the long term horizons and long dated liabilities of pension funds. They can provide diversification, long term stable cash flows, and a way to hedge against inflation. We have seen some initiatives in this area but more can be done to develop a stable and consistent regulatory environment for investment in less illiquid assets that can offer appropriate returns.