Macro-opportunities for insurance
State-run continental European retirement schemes are under ever-increasing pressure trying to maintain current levels of benefits paid to the retired. It is estimated that the European elderly dependency ratio, now at 22%, will reach around 40% by 2030. This compares with total dependency ratios of 50% and 68%. This means that 10 people of working age provide for the social costs of every seven people of non-working age – above 65 or under 15. And, even within the ‘working age’ population, there are students, disabled, unemployed and others who do not actually contribute to economic output.
Hence, the burden on the actual working population is far higher than the raw figures suggest. Governments are waking up to the economic costs of an ageing population and trying to reduce future liabilities. The possible solutions are complex but two main themes are favoured. The first is to reduce the level of benefits paid. The second is to lengthen the average working life by extending the retirement age. The political backlash from such moves has been painful, yet the economic realities persist. People are starting to recognise that the state may not be able to afford to fund their retirement at current levels. We expect there to be a marked shift into occupational pension schemes and other lifestyle savings products, including mutual funds.
The current macro setting – low interest rates, easier cross-border investment and easing investment restrictions – marks a watershed in the market for European savings products. An ageing population and under-funding of state pension schemes, combined with rising individual net worth and deeper, more liquid equity markets, promise unprecedented levels of business for providers of savings products.