GERMANY - Europe’s market for occupational and private pensions should more than double to euro 16.4 trillion in 2015 from around euro 7.4 trillion currently, as governments promote greater reliance on second- and third-pillar pensions, according to a new study by Allianz Global Investors (AGI).
The AGI study said that of the estimated euro 9 trillion in new pension assets by 2015, no less than 80% would be concentrated in France, Germany and Italy alone. France would, in turn, claim the greatest share of these assets, followed by Germany and Italy, it said.
In Germany, where the lion’s share of corporate pension liabilities are funded by book reserves, the AGI study noted that the creation of contractural trust arrangements (CTAs) were booming. It estimated that at the end of 2004, CTAs accounted for €50bn in pension assets.
Under a CTA, pensions liabilities in the form of book reserves are removed from a company’s balance sheet and consolidated into a legal arrangement backed by liquid assets. While expensive to build, CTAs are regarded by international rating agencies as an effective way of fully funding pension liabilities.
The AGI study also observed that amid an ever-greying Europe, governments had no choice but to “roll back the generosity of state pension schemes, as otherwise these schemes will collapse under the weight of demographics”.
To illustrate its point, the study said the share of people over 65 in both Italy and Spain would increase to 55% of their populations by 2055 from a respective 28% and 25% now. Even in Germany, people over 65 would total 50.5% of the population by 2050 compared with 26.6% currently, it said.
Unfortunately for European pension schemes, AGI’s study had few encouraging things to say about their finances. Following the equity crash of 2000-2002, the study estimated that on average, a European scheme’s assets covered just 80% of liabilities currently.
“Longer life expectancy among pensioners, weak returns on capital markets and tighter accounting standards will only serve to aggravate this problem going forward,” the study added.
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