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IPE special report May 2018

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Enormous potential for retirement products in Europe

GLOBAL – The retirement provision and asset management industries will profit the most from demographic ageing, according to a new report from Deutsche Bank.

“Retirement provision, and thus asset management, are the business lines that will profit most from the ageing process in the G3 countries,” said a Deutsche Bank report on the impact of demographic ageing on the banking industry, referring to the US, Europe and Japan.

The report notes the trend for European governments to supplement pay-as-you-go pension systems with funded systems, modelled on the US and the UK.

“Currently, 95% of an average pensioner’s income is state financed in Germany, compared with 59% in the USA and only 43% in Great Britain. The potential for retirement finance products in Continental Europe is therefore enormous.”

The report predicts growth in the European annuities market as state pension provision falls back. “In the past, demand for private annuities was on the low side in Europe as state pension schemes performed precisely this function. Since, however, state pensions are likely to be smaller in the future, demand for private annuities should rise.”

“Population ageing and shrinkage hang like swords of Damocles over European and Japanese society,” it said. But it adds that reform of health and pension systems are just one aspect of the process. “Demographic change will cause major upheavals on the markets for labour, capital, goods and services.”

The report also says that companies uncovered pension obligations will in the future play a much more significant role in banks’ financing decisions. “In the past a company’s pension commitments often failed to receive adequate attention in its credit rating,” the report states.

“Analysts and legislators alike are therefore placing greater emphasis on the transparency of these sometimes hidden obligations.”


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