EUROPE – Senior officials from the Organisation for Economic Cooperation and Development and the Seventh Swedish Pension Fund AP7 have outlined some of their latest thinking at the annual IPE Awards in Berlin today.
OECD countries have woken up to the need to adapt to an ageing society, and reforms have taken place, said Monika Queisser, principal administrator at the Paris-based body.
However, there was “limited scope” for further benefit cuts in much of Europe especially the lower end. This includes turning to options of saving more and working longer, she told the event's attendees.
Queisser delivered a keynote address on 'Solving the Pensions Puzzle'.
She outlined the organisation's key findings regarding the redistribution of income towards low-income pensioners and the maintenance of living standards during retirement – pinned as the two primary objectives of pension funds.
The OECD has projected that the average gross replacement rate - a measure of pension entitlements as a share of individual lifetime average earnings - for OECD workers earning an average wage will be 57%.
However, there will be a “substantial variation” among the member countries, said the organisation's March Policy Brief.
While workers in Denmark will enjoy a replacement rate exceeding 100%, Ireland Belgium and Germany come close to the bottom of the table, and the UK is ranked in twelfth position among the EU 15.
Austria, Italy and Spain also top the table, while France rates around the roughly 50% mark.
“Reform is one of the biggest challenges of the 21st century,” said the OECD brief.
Despite the fact that the report stated that pension reform is regarded as a difficult task, “public opinion on pensions has been changing.
“People are realising that a shrinking number of workers will have trouble paying for more and more pensioners.”
Peter Norman, executive president of Sjunde AP-fonden, told delegates about the fund's new “pure alpha” concept – which aims at returns of alpha plus one (100 basis points). He added the fund won't give capital to managers unless they buy into the concept.
“I don't want asset managers hiding beta returns. That's why I will only give them my money if they achieve pure alpha.”
“No asset managers are currently willing to meet this criterion, so I guess I am pushing the industry in that direction.”