Dire warnings about poverty in old age, by themselves, may not be enough to get young adults sufficiently interested in saving for their retirement to the extent that many experts believe they need to, delegates to a FECIF conference last week were told.
To get young adults who may still be paying off university loans and looking to buy their own homes to sign up to a pension regime, several experts involved in various aspects of pensions planning from across the European Union noted, they may need to be coaxed into participating through a combination of incentives, as well as by being given better and earlier education in personal finance matters than most are now getting.
John Beaney, legal & regulatory executive for the Association of International Life Offices (AILO), noted that auto-enrolment — which has been in the process of being phased in in the UK market — seems to be working there, with “seventy-odd percent” opting in, compared with just 30% choosing such a scheme if it had been left up to them to initiate it.
(Under the UK system, employees are required to opt out of an occupational pension plan that their employer is being required to offer them if they don’t want to participate. Previously the decision to enrol in such a scheme would have been left to the employee to make.)
Beaney described what he calls a “big balancing act” that he says governments are increasingly having to undertake as they attempt to maintain “meaningful state benefits” for those who need them, while at the same time “encourage more people to go into their own pension provision”.
“To my mind, that’s what’s going to have to be done more and more in the future,” he added.
“We’re going to have to be more flexible…and again, costs come into this, so we’ve got to design products and be prepared to sell products which offer a lower remuneration [to their providers].”
Sense of urgency
Among the other messages that emerged loud and clear from the FECIF event was that the pension-funding issue is becoming increasingly urgent across Europe, as the few companies still offering defined-benefit pensions are moving to end them, and as tensions rooted in the issue are beginning to mount between the generations in some areas – notably, one speaker noted, in the Netherlands.
Even as the FECIF conference attendees were beginning to gather at the Renaissance Brussels Hotel last week, the European Council was announcing that new pan-European EU legislation providing for the creation of so-called European Long-term Investment Funds (ELTIFs) had at last come into force.
The ELTIF legislation had been drawn up as a way of helping to give European pension fund administrators, insurance companies and similar entities that look to invest over the long term a new and reliable source of income. The option to offer ELTIFs is to be limited to asset managers that are regulated under the EU’s Alternative Investments Fund Managers Directive (AIFMD), among other requirements, according to the EU.
Brussels-based FECIF, or “Fédération Européenne des Conseils et Intermediaires Financiers as it is formally known as, represents the interests of financial advisers and intermediaries in Europe.
The conference was entitled “Social welfare in times of economic stagnation: can smart regulation stimulate private pensions?”
‘One-seventh of UK spending’
According to FECIF secretary general Paul Stanfield, recent UK Treasury data shows that £1 in every £7 the British government spends now goes on pensions, and it is likely that figures elsewhere in Europe “are similar, or will be very soon”.
Stanfield, who is also chief executive of the Federation of European Independent Financial Advisers, revealed this and other facts about what he called the “pension gap” in a comment piece on FECIF’s website, in which he noted that the UK Government’s introduction of new legislation that permits UK citizens to have far greater access to their pension pots at retirement than previously was possible, as well as greater flexibility as to what they might do with them, appeared to have engaged people. It also seems to be bringing about “greater inflows of money into pensions from present savers”, he noted.