Europe’s Pension Challenges Liam Kennedy Editorial Director, Investment & Pensions Europe AMAC, Beijing, 16 June 2014

Melbourne-Mercer Pension Scores CountryScoreRanking Denmark80.21 Netherlands78.32 Australia77.83 Switzerland73.94 Sweden72.65 Canada67.96 Singapore66.57 Chile66.48 United Kingdom65.49 Germany USA Poland57.912

Increases in the median age Source: NAPF, OECD

A reduction in ratio of working population per person 65+ Source: NAPF, OECD

A clear reform agenda Multi-lateral legislation from 2009 G20 Pittsburgh summit – Dodd-Frank in US and EMIR, AIFMD, MiFID II in EU European Union Green Paper Towards Adequate and Safe European Retirement Systems (2010) EU Green Paper The Long-Term Financing of the European Economy (2013) Draft Directive on Pension Funds to co-ordinate the investments, security and regulation of existing funded occupational pensions (2014)

Positives and negatives Germany is reducing the retirement age for some workers. Strong criticism from European Commission Reforms of defined benefit pensions in the Netherlands AV2020 reform programme in Switzerland Auto-enrolment programme and flat rate national retirement pension in the UK

The Netherlands 90% of workforce has access to a supplementary pension Pension assets 170% of GDP Retirement age rises to 66 in 2018 and 67 in 2021 A defined benefit system with high level of intergenerational risk sharing Commitment to collective pension system Strong regulator focused on security and promoting best practice

Germany Low levels of supplementary pensions (509bn USD, 8% of GDP) and a complicated system Reforms of the early 2000s have not been successful in increasing pension saving Coalition government plans to reduce the retirement age for some workers and increase entitlements for mothers

Switzerland High level of second pillar pension assets 786 billion USD, 120% of GDP A DB/DC hybrid system AV2020 pension reform to raise women’s retirement age to 65, introduces flexible working for older people Controversy over the calculation of retirement benefits for

United Kingdom Largest European pension market with assets of 3.6 trillion dollars (131% of GDP) But declining participation in DB pensions and inadequate pensions savings Automatic enrolment programme for low- earners and a state backed fund called NEST Legislation to introduce hybrid risk-sharing pension funds

Smart public policy Automatic increase retirement age in line with longevity (Denmark, Greece and Italy) Incentives to delay retirement (Sweden, Croatia) Flexible working for the 60+ (France, Switzerland) Access to lifelong learning for 60+ (Portugal) Compulsory supplementary pensions (Netherlands, Switzerland) Auto-enrolment (UK) Tax incentives for increased pension savings (UK)

Smart pension funds Smart institutions: large scale, collective institutions lower costs and improve outcomes Smart DC default funds: target-date funds with investment strategy related to the age of participant Smart choices: less is better as many people may make the wrong investment choices

Investment trends Persistent low interest rates affect DB pensions Increased focus in (domestic) investments in infrastructure, SMEs and technology EU Green Paper The Long-Term Financing of the European Economy (2013) The UK Review of Equity Markets by Professor John Kay Strong focus on effective structures, governance and decision making

Thank you!