philip neyt convergence in european pension markets

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1 Convergence in European Pension Markets What are the main drivers to merge pension funds into a single Pan European Pension Fund? Philip Neyt, Chairman Belgian Pension Fund Association Belgian Pension Fund Association - T : +32 2 706 85 45 - E : [email protected] - www.pensionfunds.be

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Page 1: Philip neyt   convergence in european pension markets

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Convergence in European Pension MarketsWhat are the main drivers to merge pension funds into a single Pan European Pension Fund?

Philip Neyt, Chairman Belgian Pension Fund Association

Belgian Pension Fund Association - T : +32 2 706 85 45 - E : [email protected] - www.pensionfunds.be

Page 2: Philip neyt   convergence in european pension markets

Pressure on EU Pension Systems

EU Citizens’ feelings about future pensions (Eurobarometer 2010)

Lower pension benefits

Save more

27%

26%20%Retire later

73%

27%

Pension will change

Pension will not change

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Pressure on EU Pension Systems

EU Citizens’ feelings about future pensions (Eurobarometer 2010)

53%47% Fairly or very worried

of pension income

Pension wil be adequate

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Pressure on EU Pension Systems

AFFORDABILITY AND SUSTAINABILITY OF STATE PENSION= life expectancy at effective retirement age

ADEQUACY OF STATE PENSIONS= average state pension compared to average wage

OCCUPATIONAL PENSIONS: CLOSING THE GAP?= Assets/Liabilities ratio

Work longer, Later/flexible Retirement

More grip on pension (funding) risk (f.ex.Pan-European pension fund ….)

Annual Growth Rate (Liabilities-Assets)

2000-2010: 3%

EU =

18,5 YRS

Remedies

4

EU =

42 %

Need of occupational pensions

Page 5: Philip neyt   convergence in european pension markets

Pension Risk at the Corporate Agenda

“Since 2009 pensions belong to the top 10 concerns of CFO’s” (CFO.com)

“Deficit in US States’ employee retirement funds grows to $ 1.3 trillion of 11.000 $ for each American” (Pew Center, 4/2011)

“FTSE 350 companies face a pension deficit of £177 bn or 78% of their earnings” (Hymans & Robertson, 3/2010)

“One third of FTSE100 companies can now not pay off deficits in any realistic timeframe from discretionary cash flow” (KPMG, 2010)

“A pension promise can be easy to make but expensive to keep. The immediate cash cost is only part of the problem; the longer-term calculation also involves the value of future pension promises. (The Economist, 4/2011)”

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Multinational Pension Asset Pooling

Company MNCUK Pension Plans

Company MNCGerman Pension Plans

Company MNCFrench Pension Plans

Company MNCGerman Pension Fund

Company MNCFrench Pension Fund

Manager A Manager B Manager C

Investments

Company MNCUK Pension Fund

Pooled Asset Vehicle

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Page 7: Philip neyt   convergence in european pension markets

Company MNCUK Pension Plans

Company MNCGerman Pension Plans

Company MNCFrench Pension Plans

Manager A Manager B Manager C

Investments

Single Pension Fund Entity

Multinational Pension Fund Pooling

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What Drives a Multinational to Pool their Pension Funds?

Reduced operational Risks(More grip and control)

Simplified & centralized oversight

Enhanced risk assessment, consistent risk mitigation

Integrated global pension risk control

Unified governance

Consistent, central reporting/control

Efficiency gains(economies of scale)

Uniformity facilitates workforce mobility

Pooling of “know how” (deeper expertise)

Leaner admin and fewer providers and interfaces

Eases m&a transactions

Cost savings(single European Entity)

Funding flexibility / predictable funding

Tax optimization

Lower regulatory burden (single supervisor)

Solidarity between subsidiaries or ring-fencing

Better cost transparency and lower operating costs

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