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Mercer study warns of European 'hybrid' costs

GLOBAL - Pension schemes will face increasing government intervention and higher costs has more and more pension arrangements are moving to defined contribution or hybrid systems, consultancy firm Mercer has claimed.

A study by the consultants set outs the approximate percentage of plans - supplementary to the State regime - in each country which are considered to be final salary (DB), money purchase (DC) or a hybrid of the two, and notes all countries in Europe, except for the Netherlands, now have a predominantly DC emphasis.

But the firm is warning while DC and hybrid schemes have "understandable appeal", shifting towards systems which place greater risk on employees and individuals, rather than on the company as currently seen with DB schemes, could encourage companies to reassess their us of DC arrangements.

"Increased reliance on defined contribution arrangements will lead to more government intervention," said Deborah Cooper, principal at Mercer's London office.

"This will in turn increase costs. Hybrid arrangements can balance the risks employees face, in relying on investment markets in pure DC schemes, with the regulatory and financial pressures experienced by employers providing DB schemes," she added.

Interestingly, while Mercer acknowledges the definition varies across counties, it suggests the UK market is made up largely of hybrid schemes as a mixture of DB and DC features in one plan design, as it states 64% of supplementary plans are hybrid - even though hybrids are not technically allowed under current UK regulations - compared with 18% equal weightings in DB and DC.

Elsewhere, Ireland now has 37% in DB plans, 38% in DC and 25% in hybrids, and the government has started discussions about the prospect of introducing hybrid arrangements.

Norway's plans are split 50% to DB, 45% to DC and 5% while Germany currently sees 50% of its pension arrangements under DB rules, 10% in DC and 40% as hybrids and Sweden is considered to have 100% of supplementary pensions in hybrids.

Further details of the exact breakdown are available in Mercer's latest guide - Introduction to Benefit Plans Around the World.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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