EUROPE – The European market for investment funds needs more work in the face of shifting demographics and the need for retirement savings, says the International Monetary Fund.

“The existing single market framework for investment funds needs further development, especially given Europe’s need for retirement savings ahead of the looming demographic shock,” the IMF said in a report on the euro area.

The comments echo those of the European Commission, which said last month that its new proposals for the UCITS fund market could help tackle the continent’s pensions crisis.

The IMF said the market “still operates in a largely fragmented environment, where legal and tax barriers hamper the development of cross-border investment products”. This was despite a succession of regulatory steps such as the UCITS III directive.

The fund said institutional differences continue to hamper the development of a unified market for financial services. There were cross-border barriers, for example, in the taxation of savings for retirement.

The IMF also “underscored the need to prepare the euro area's public finances for the looming demographic shock”.

“This will require steady progress toward achieving underlying fiscal balance by 2010, when population aging is set to accelerate.”

The fund also commented on the recent introduction of ultra-long bonds.

It said: “With a rapidly ageing European population and in the context of a reform of public pension systems, ultra-long fixed income securities are expected to meet a growing demand from institutional investors with long term liabilities, such as pension funds and life insurers, and ultimately provide the necessary anchor for the development of new investment products.”

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