EUROPE - Pensions analysts in key western European regions believe the move to defined contribution (DC) pension plans is largely being driven by the ability to better calculate costs, according to research.
Allianz Global Investors and the Centre for European Economic Research (ZEW) have conducted a survey, entitled Defining the direction of defined contribution in Europe: results of an Expert survey, which says the growth of defined contribution schemes is expected to continue, but the key defined reason is because it is easier to calculate costs compared with defined benefit arrangements, while cost reduction plays a lesser role.
At least 89% of those questioned said they expect to see growth in the occupational DC market, and 90% or more of people in France, the Netherlands and Switzerland believe there will be a significant increase in DC pension schemes over the next five years.
At least 90% of responses from Germany, the Netherlands, Switzerland and the UK said cost calculability was a "crucial factor driving employers to choose DC over DB plans".
At the same time, however, AllianzGI has interpreted responses from France, Germany, Italy and Switzerland as suggesting investment strategies with built-in risk management features are expected momentum as a result of the recent financial crisis.
At least 40% of respondents in France, Germany and Italy said they expect "there will be an introduction or extension of [various types of investment] guarantees". Allianz went on to say that "relatively few experts" in Germany and Italy disagreed with this view. However, the large majority of British pensions experts are convinced that investment guarantees will not be introduced in the UK.
At the same time, 80% of German interviewees, 72% from the Netherlands and 67% from Italy said they expect protection mechanisms will play a greater role in DC plans, most likely through a move to less risky assets.
Interestingly, 53% of the 15 French respondents "showed the highest expectation that mandatory employee participation will be introduced", according to the study, and 73% of French respondents said they expected it to become mandatory for employers to offer DC plans - indicating analysts expect to see regulatory moves in France to tackle this problem.
It was also the French pensions experts who said they strongly expect to see additional tax incentives introduced for both employers and employees, whereas respondents from the other countries were relatively pessimistic.
A total of 216 respondents from western Europe's largest pensions markets - France, Germany, Italy, the Netherlands, Switzerland and the UK - contributed to the study, and had varying backgrounds from academia, asset management, consultancies, pension funds, insurance companies, supervisory authorities and international organisations, as well as one response from a corporate.
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 firstname.lastname@example.org