EUROPE – Top European pension executives have told the IPE Awards seminar in Zurich today that cost cutting, inflation and attitude to risk are among the most significant challenges for the future of the industry.

Speaking at the event preceding the annual awards ceremony, the seven-strong panel including Jaap Maassen, managing director of the Dutch civil servants’ pension fund, ABP, spoke of the need of change.

Maassen tackled the issue of cost cutting, telling representatives of pension funds that there should be neither “blank cheques”, nor “unconditional indexation”.

“We must remember that pensions are part of remuneration and that they could cost much,” Maassen – who is also the new chairman of the European Federation for Retirement Provision - said in the course of the debate.

“At the end of the day, if you have formal indexation promises, you need a six, seven percent return and you have to take risks,” he said. “Otherwise it’s a nominal form of guarantee.”

Final pay arrangements should be reviewed in favour of career-average arrangements, he also suggested stressing, however, that “ a certain form of solidarity should be maintained.”

Maassen also called for pension funds to refrain from complete outsourcing to “retain some expertise”.

The biggest risk for European pension funds is that they are not used to a low inflation environment, said Bjarne Graven Larsen, chief investment officer of the Danish fund ATP. He pointed out that most European pension funds does not hedge their inflation risk – because they have a strategic view on inflation.

Larsen spoke in favour of using asset-liability management as an eye-opener on the risks taken by a pension funds. He added that pension funds should not be “slaves to benchmarks”.

“Benchmarks are measurements for security accountability, to make sure that we make investments the right way,” he said, adding “ but it is important to separate risk willingness from tactics”

Antoine de Salins, member of the executive board of the French buffer fund Fonds de Reserve pour les Retraites, said caution was the FRR’s watchword at the moment.

De Salins, said the fund had the investment philosophy of a long-term investor , who values caution. The FRR had resisted “friendly pressure” from advisors to try riskier strategies. He also said that FFR means to make sure that those who are in charge of deciding about asset allocation understood the risks involved.

“We try to explain and explain to be sure that if there is a problem in the future because clearly we could make losses, we have at least enough consensus.”

“We need to be cautious, but we should be more tactical in the medium term” Peter Scales, chief executive of the London Pensions Fund Authority joined in.

“ I think we have seen the peak of exposure to equities in the biggest European markets” observed Eric Lambert, head of client consultancy at The WM Company.

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