European pension funds were more optimistic about the economy in their own countries during the second quarter of 2010. Pension fund managers were also more positive about the financial situation of their own fund than in the first quarter. However, the rise in optimism about the economy in their own countries has been even more pronounced than the increase in optimism about their own funds.
This is according to the most recent survey of pension funds in Europe, the Global Pension Survey (GPS). Each quarter, the survey questions pension fund managers about the developments they expect to see in the pensions sector and on financial markets.
This quarter, the GPS included European pension fund managers, and in future quarters it will be expanded into a worldwide survey. The survey gives not only an indication of the mood among pension fund managers but also of the economy in general.
The GPS is the result of a partnership between Tilburg University, Investment & Pensions Europe (IPE) and the European Pension Academy (EPA).
Pension funds moderately optimistic
Many European pension funds have become more optimistic about the prospects for their own fund when it comes to attaining their financial goals (in terms of coverage ratio and returns). In total, 47% were more optimistic than in the last quarter, while only 9% were less optimistic. However, pension fund managers have only modest expectations when it comes to any improvement in coverage ratios. They expect the total assets of their funds to increase by at least 4% over the next 12 months, and liabilities to rise by 3%. Pension funds have clearly grown more optimistic about the economy of their own countries: 69% are more optimistic than the last quarter, while only 4% are less optimistic.
The optimism index measures the difference between the percentage of those who are optimistic and those who are pessimistic, and indicates the change in optimism among pension funds.
Compared to the last quarter, managers view legislation as an increasing challenge and the continuing volatility on the financial markets is also demanding more of their attention.
At the same time, worries about the stability of the financial system have eased slightly, despite the atmosphere of crisis that has surrounded southern European countries in recent weeks.
There is widespread concern among the managers questioned in the Global Pension Survey about the return of inflation. For example, 53% of managers disagree with the statement that the central banks should adjust their inflation target upwards by 1 or 2% in order to allow a rise in long-term interest rates, a fall in the market value of the pension funds' obligations and an improvement in the overall financial position of the pension funds.
On the other hand, 60% are more worried about rising inflation in the year to come than about falling stock markets. But not all the anxieties involve inflation or the crisis in Greece. 53% are more worried that a possible trade dispute between the US and China about the exchange rate between the yuan and the dollar may have an unfavourable effect on the financial markets than are worried about the problems in Greece.
The Global Pensions Survey is a partnership between Tilburg University, Investment & Pensions Europe and the European Pension Academy. For more information or to participate please visit www.globalpensionsurvey.com