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European countries move to UK pension model

EUROPE - Continental European countries are moving towards the UK model of pensions provision, according to a senior executive of a leading UK asset manager.

Gavin Ralston, executive director of Schroders, told a round table meeting in London: “While pension reform in the UK and Continental Europe is addressing different problems, we do expect the systems to converge in the future as Continental Europeans place greater reliance on funded pension assets. This will cause them to move closer to the UK system.”

However, he said that Continental Europe was unlikely to copy the UK’s defined benefit plans, many of which have been closed or are currently under threat of closure.

“Although many European countries respect the reforms being made in the UK and the decreased reliance on the state for pensions provision, they tend to be leapfrogging our defined benefit in favour of defined contribution schemes. In the long term we are likely to see pension reforms across Continental Europe converging towards the defined contribution schemes in the UK.”

Ralston said pay-as-you-go (PAYG) systems in Europe were unsustainable and could lead to countries being downgraded and ultimately defaulting. He expected the French government to push through its proposed reforms in spite of union opposition. In Germany, he said, compulsion may be necessary to make the Riester reforms work.

He cited Sweden, Netherlands and Denmark as countries that are running their pension schemes effectively. “Timing is of key importance. Nordic countries have ended up with systems that work because they tackled the problems well before the southern European countries.”

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