While euro-zone household savings, including retirement provision, grew steadily from around €600bn gross savings at the end of the century to a peak of €910bn in 2009, they fell to €834bn by 2011.
According to a member survey on long-term savings carried out by the Brussels-based European Fund and Asset Managers Association (EFAMA), the most relevant factors that caused the fall are “lack of trust, market risk and poor performance”.
The survey also revealed that the majority of the industry believes that better communication (81%), better advice (75%) and better understanding of investor needs (74%) are required at a distribution level to strengthen trust over market risk. It also highlights the importance of investor education.
Over 90% of respondents believe that retail investors still need to become aware of the benefits of long-term savings, according to EFAMA. It also stresses that long-term household savings, which are the main source for funds to finance long-term investment, tend to generate higher returns than short-term savings.
More than three-quarters (77%) of members polled said the most relevant reason for this is because long-term savings provide access to equity risk and liquidity premia. That is, investing with a better risk-return balance.
The majority (72%) believe the best way for the asset management industry to raise awareness of the importance of long-term savings is by convincing EU and national authorities to encourage long-term retirement savings.
The European industry also supported (58%) the idea of launching a common information initiative on long-term savings benefits to help raise awareness.
Finally, when examining factors that would encourage asset managers to develop funds targeting long-term savings, 82% of members felt the most relevant approach would be to create greater incentives for retirement savings, followed by greater household demand for long-term savings products (65%), while 54% felt that a common EU framework dedicated to long-term investments for retail investors is needed.
EFAMA’s survey reveals that the industry believes rebuilding trust with retail investors will come through the promotion of long-term savings.
It concludes that the European fund and asset management industry must work to educate investors at the distribution level about the need to extend their investment horizon to remedy the investment drop-back.
Furthermore, it writes, “the industry must continue to engage with European and national governments to create incentives for investors to save for the long-term and their retirement.”
Bernard Delbecque, EFAMA’s director for economics and research, adds a recommendation to spur the supply of long-term saving products by the development of retirement-orientated products.
EFAMA represents the European investment management industry with member associations and 59 corporate members holding approximately €14trn in assets under management early in 2012.