Two of Europe’s leading pension markets are about to undergo a dramatic shake-up in the new year with the introduction of ground-breaking reforms.
In Italy, Cerulli is expecting an imminent change in the law regulating pension fund investments, and from April 2015, retirees in the United Kingdom will no longer be forced to buy an annuity with their pension funds.
The fourth quarter issue of The Cerulli Edge-Europe Edition takes a close look at these developments, and suggests why they represent an ideal opportunity for asset and hedge fund managers to step in and satisfy an expected increase in demand for strategies and products.
“Law ‘703/96’, which has been in force in Italy for the past eight years, is expected to give way to a new regime, sometimes referred to as ‘new 703’ where risk assessment and management will be at the core of asset allocation,” notes Barbara Wall, Europe research director at Cerulli Associates. “It will impact both ‘open’ and ‘closed’ pension funds, worth a combined €46.5bn (US$57.9bn)–or just more than 40% of the total Italian pensions industry–by allowing exposure to asset classes that have hitherto remained ‘out of bounds’, including hedge funds, emerging markets, and commodities. We describe the change as nothing short of an ‘investment revolution’.”
Cerulli associate director David Walker says, “The pension landscape in the United Kingdom is also about to see a profound change as pension savers will soon be at liberty to manage their own finances and seek alternative ways of generating an income in their retirement.
“Retirees will be looking to insurers to manage their longevity risk and asset managers to deal with their investment risk. As a result, we are anticipating greater demand for multi-asset funds, target-date funds, and an increase in the use of drawdown, which will soon become the mainstream option and not just the preserve of the affluent.”
This article has previously been published on Funds Society.