EUROPE – Europe’s second pillar pensions market will grow from its current level of €3.5trn to €17trn by 2020, at the expense of the first pillar market, amid inevitable structural change and with dramatic implications for European capital markets, says Commerzbank.

It believes that, as part of the growth, asset allocation strategies will change as more funds go for European rather than local equities, for corporate rather than government bonds and from debt to equities. It predicts inflows over the next eight years of €274bn into equities and €191 into fixed income.

Commerzbank estimates that alternative investments will account for as much as 10% of Europe’s pension funds’ value by 2020, with private equity exposure doubling to 4.5%.

Commerzbank says that in some cases, PAYG liabilities will be three times GDP by 2040. This will to lead to structural changes in the savings and investments market, and thus the enormous growth predicted in the second pillar market in Europe, says Commerzbank. Existing financial institutions will benefit greatly as the infrastructure expands rapidly to accommodate the growth.

Furthermore, the boundaries between the second and third pillars will become increasingly blurred as occupational schemes switch to defined contribution, making them effectively personal schemes.