Pensions in Europe A personal perspective on some important developments by Falco Valkenburg Independent Actuary Chairperson Pensions Committee of the Actuarial Association of Europe Member of the Occupational Pensions Stakeholder Group of the European Insurance and Occupational Pensions Authority FIAR PRIVATE PENSIONS Conference Poiana-Brasov, 24 May 2017
Actuarial Association of Europe Established in 1978 by 12 national associations Belgium, Denmark, France (2), Germany, Ireland, Italy (2), Luxembourg, Netherlands, UK (2) Now representing over 22.000 actuaries in Europe Full Member Associations (32) Observer Member Associations (4) Purpose advise European institutions on issues of actuarial interest provide a forum for discussion among actuarial associations in Europe promote high standards of education and professionalism further the education and professional development contributing to the well-being of society 2
Agenda 1rst Pillar Pensions Ageing Report of the European Commission Some impactful developments My personal perspective Additional savings needed Household s needs comes first Make savings relevant now!
Main sources: 2015 Ageing Report 424 pages Economic Projections 436 pages Assumptions/Methods 2015 Pension Adequacy Report 396 pages Volume I 373 pages Volume II That is 1.629 pages in total Our discussion paper provides a summary and additional actuarial considerations in only 48 pages
Overall projection of public costs to 2060 for EU % of GDP in 2013 % of GDP in 2060 11.3 11.2 Health care 6.9 7.8 Long-term care 1.6 2.7 Education 4.7 4.7 Unemployment 1.1 0.7 25.6 27.1 Pensions Total
Demographic background for EU Total fertility rates 1960-2060 for selected EU member states I E F 3.50 R U K 3.00 S E B 2.50 Point of convergence E (level UK and Sweden) D 2.00 K F I 1.50 R O C 1.00 Z 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 4.00
Demographic background in EU Male expectation of life at 65 to 2060 in selected countries 24.0 23.0 22.0 21.0 20.0 19.0 18.0 17.0 16.0 15.0 14.0 2013 2020 2030 2040 2050 2060 FR ES SE IT U K IE D E NL AT BE PT D K SI C Z
Demographic background in EU Female expectation of life at 65 to 2060 in selected countries 27.0 FR 26.0 25.0 24.0 23.0 22.0 21.0 20.0 19.0 18.0 17.0 2013 2020 2030 2040 2050 2060 ES IT FI AT BE SE D E IE NL SI U K D K EE PL
Period and cohort expectations of life, UK, 2015 Males 2015 Females 2015 Period Cohort Period Cohort 60 22.7 25.9 25.3 28.3 65 18.7 21.3 21.0 23.6 70 14.9 16.9 16.9 19.0 75 11.4 12.9 13.1 14.7 80 8.4 9.4 9.7 10.7 Important to draw the distinction between period and cohort expectations of life. Difference of about 2.6 years at age 65. However, cohort expectations often not published.
Projection of net migration flows 2013-2060 Net migration flow in 2020 (000s) Cumulative net migration 20132060 Cumulative as % of 2013 population LU 11.7 429.0 85.8 BE 80.2 3192.0 28.5 IT 348.1 15511.0 25.8 SE 55.3 2273.0 23.7 AT 51.3 1994.0 23.5 FI 22.0 812.0 15.0 UK 172.1 9162.0 14.3 ES -79.0 6511.0 14.0 DE 228.7 7041.0 8.7 FR 90.2 3960.0 6.0 RO 0.4-35.0-0.2 LV -14.3-237.0-11.9 LT -37.4-605.0-20.2
Demographic background in EU Old-age dependency ratios in some countries, 2013 to 70.0 PT 2060 PL DE 60.0 EE ES 50.0 IT RO 40.0 AT CZ 30.0 NL FI FR 20.0 UK DK 10.0 SE BE 0.0 2013 2020 2030 2040 2050 2060 IE
Demographic background in EU Old-age dependency ratios in some countries, 2013 to 2060 70.0 Adjusted for retirement age rising from 65 to 70 PT DE 60.0 PL SI ES 50.0 IT RO 40.0 AT NL 30.0 EE FR FI 20.0 UK SE 10.0 DK BE 0.0 2013 2020 2030 2040 2050 2060 IE
Demographic background in EU Pension age to maintain cohort expectation of life (UK) Expectation of Expectation of 24.3 Year 21.6 for males for females 2020 65.7 65.5 2030 67.0 66.7 2040 68.2 67.8 2050 69.3 69.0 2060 70.5 70.1 1.2 per decade 1.1 per decade Over 50 yrs
Member states with largest populations 2013-2060 2013 (millions) 2060 (millions) Increase UK 64.1 80.2 +25.1% France 65.7 75.6 +15.1% Germany 81.4 70.9 12.9% Italy 60.2 66.3 +10.1% Spain 46.6 46.2 0.9% Poland 38.6 33.3 13.7% Romania 20.0 17.4 13.0% Total EU 507.2 522.7 +3.1%
Change in population of working age 2013-2060 % % Lithuania 47.8 France +4.7 Latvia 42.0 Denmark +6.2 Bulgaria 39.1 Cyprus +6.4 Greece 35.5 United Kingdom +11.5 Portugal 35.5 Finland +13.1 Poland 33.9 Sweden +24.8 Romania 28.5 Belgium +25.3 Total EU 11.6 Luxembourg +87.1
The 2015 Ageing Report Public pension expenditures in 2013 and 2060, % of GDP Country 2013 2060 Increase 2012 AR Luxembourg 9.4 13.4 4.0 9.4 Slovenia 11.8 15.3 3.5 5.8 Belgium 11.8 15.1 3.3 5.2 Germany 10.0 12.7 2.7 2.6 Ireland 7.4 8.4 1.0 4.2 Netherlands 6.9 7.8 0.9 1.8 United Kingdom 7.7 8.4 0.7 1.5 Romania 8.2 8.1 0.1 3.7 Italy 15.7 13.8 1.9 0.9 France 14.9 12.1 2.8 0.5 Denmark 10.3 7.2 3.1 1.2 EU 11.3 11.2 0.1 1.0
Reform measures undertaken or in progress Major reform measures include > raising eligibility age for public pensions > reductions in pension accrual rates > career average instead of final salary > less generous indexation of pensions in payment > notional defined contribution structures > contribution increases
Analysis of pension cost changes The Ageing Report analyses changes into components: > > > > changes in dependency ratio changes in coverage ratio labour market effects changes in benefit ratio
Change in Benefit Ratios 2013-2060 % % Cyprus 32.5 Finland 6.7 Spain 25.3 Italy 6.4 Sweden 16.9 Germany 5.2 Latvia 16.2 Slovenia 5.0 Portugal 15.8 Ireland 3.1 Slovakia 15.6 Netherlands 1.1 Romania 14.5 United Kingdom 0.7 Greece 14.1 Luxembourg +0.5 Denmark +7.5 Total EU (weighted) 8.1 Benefit ratio is ratio of average pension to average wage.
Pension Adequacy Report 2015 Striking comment in the 2015 Ageing Report: DG Employment s riposte to The Ageing Report 2015 > important to consider adequacy alongside sustainability > adequacy and also fairness > importance of wider considerations > e.g. access to health care, housing > limitations of theoretical measures such as replacement ratios > need to look at many different facets
Need for additional savings Are people willing to save? Means sacrificing purchase power now To build purchase power in retirement Tax incentives? Mandatory savings? Suggestion: Make savings relevant now 21
Australia
Example linking current themes (Energy) Savings resulting in additional (Pension) Savings Engagement s g n Sustainability i v a s Return n o i s (Local) Economy n e w p o Environment g tn n Communication aki an v M e l Member-focus e r
Insurers and / or Pension Funds Members of pension arrangeme nts Local Cooperativ es Member Communit y Member Communit Community yof Member Communities Communit y Energy fund (investmen t fund) Member Communit y Pension savings in The Netherlands: some 1.250 billion euro If only 10% of the Members would be interested for only 1% of their money (125 million euro) Potential other areas: food, health care, housing, We could benefit individually We could benefit collectively We could change society Portals Services Portals External External Services Community Platform Supplier Solar panels/ Wind mills Engineerin g Consultanc y
Empowering the members from pension communication to informing on all income and all spending Approximately but relevant instead of exact but irrelevant 3 easy steps to arrive at this chart Using already available data PSD2 will further boost the relevancy of information
Pension Health Newsflash: Foxconn has a factory for 20,000 workers building 1,000,000 robots that make 500,000 workers unneccessary Housing 27
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My Charcoal Sketch 1rst Pillar: BASIC INCOME Solidarity with the weaker civilized society Reasonable level (political decision)
My Charcoal Sketch 2nd/3rd Pillar (combined, no difference): Individual savings, collectively managed Multiple goals (such as education, child care, start of own business, mortgage repayment, pension, health care) Encore! A National (or even European) Program for your 2nd, 3rd or 4th career including Test-Driving your Dream Job I see a very relevant role for innovative insurers and pension savings funds Making pension
My Charcoal Sketch BASIC INCOME + Individual savings (collectively managed) + ENCORE! programme Creating a Life & Work You Love and Never want to Retire from
Falco Valkenburg Bunsinglaan 3a, 3709 JN Zeist, The Netherlands +31 (0)6 22 78 50 29, hello@falcovalkenburg.eu