Management Brief on European Pensions Miami (FL), 15 October 2012

Transcription

1 Management Brief on European Pensions Miami (FL), 15 October 2012 Harry Smorenberg Smorenberg Corporate Consultancy Founder & Chair of WorldPensionSummit Pieter Kiveron Holland Financial Centre International Pension Strategist CEO Penthièvre Mondial

2 It s a small world after all

3 AGENDA Impact of ageing Overview of European landscape Corporates response Take aways

4 Aging is driven by increase in life expectancy and decrease in fertility rate Life expectancy at birth (year) Japan Germany Canada Replacement rate Italy UK US Netherlands Life expectancy France France UK Fertility rate 2 Canada Netherlands US Italy Japan Germany US Canada UK France Germany 20 Japan Italy 0 0 Size reflects population ~100M Netherlands 8 Fertility rate Note: graphical representation courtesy of Gapminder courtesy and copyright of Source: UN 2010 Population Prospects THE BOSTON CONSULTING GROUP

5 Fertility rate and life expectancy of RDEs are quickly converging to "developed levels" Life expectancy at birth (year) Japan Germany Brazil Russia Size reflects population ~100M Replacement rate China US UK UK Germany 2 India Russia Japan US Fertility rate 3 in 60 years Note: graphical representation courtesy of Gapminder courtesy and copyright of Source: UN 2010 Population Prospects THE BOSTON CONSULTING GROUP India 6 Life expectancy 2 in 60 years Brazil China US UK Germany Japan China India Russia Brazil 8 Fertility rate

6 Rapidly rising share of older people in World population source: World Economic Forum, Sep2011

7 Impact of aging Supply side Demand side source: Global Aging, THE BOSTON CONSULTING GROUP, 2012

9 PENSIONS LANDSCAPE Private schemes are absent or moderately developed Private schemes have only been recently introduced Private schemes share of income ranges between 5% and 20% Private schemes provide an important part of the income of retired people (20 30%)

10 Diversity of pension systems: importance pillar 1, 2, and 3 Source:CEAStatisticsNo28,September2007

11 Diversity of pension systems: vehicles Source:PensionMarketsinFocus:November2007,Issue4- OECD2007

12 White Paper EC Adequacy Sustainability Safety objectives Better opportunities for older workers Stimulate supplementary retirement schemes Adequacy, sustainability, and safety of pensions Promote longer working lives Stability of the Euro plus competitive position of the EU Mobile supplementary pensions Legislation Financial incentives Policy coordination Monitoring and reporting instruments

13 Overview of pension measures September 2007 February 2012

14 Retirement age [Male, source European Commission 2012]

15 New reality Low interest rates Less returns More volatility Distrust Rules & regulations Basel-III, Solvency-II, EMIR, CRD4, UCITS IV, AIFMD, IORP-II, PRIPS, UCITS V, IFRS, and more. Dodd-Frank Act, FATCA, and more; many extraterritorial.

16 Pension systems Risk employer Pure DB Final Pay DB Average Pay DB Fixed contribution DB Collective DC Pure DC Risk participant

17 Pension Systems Industry Company CDC Employer Member DC

18 Trends DB à DC DB à DC DB à DC DB à DC þ Financial Cash Accounting þ HR policy Binding talent Labor mobility ý Solidarity þ Communication

19 Collective DC Employer liability Traditional DB Conditional indexation Collective Individual Defined Ambition Individual DC No employer liability Source: ABP, 2012 Steven John Webb Thomas Richard "Tom" Harkin

20 Trends & responses Market Diversified plans Low interest rates Volatile returns Regulatory pressure Strict supervision Scarcity of talent Call for transparency Corporates Grip & control Alternative investments RISK/return Professional governance Compliance & reporting Emerging EB/HR policy Simplicity

22 Employee Benefits Management Pension pooling Asset pooling Risk pooling EB database & benchmarking Corporate HQ EB/Pensions department

23 Perspectives on pensions GOVERNANCE Governance Professional trustees Organization and representation Single reporting to supervisor(s) Issue management PENSION Grip and control Less vehicles/ structures Economies of scale

24 Perspectives on pensions GRIP AND CONTROL Governance Compliance Integral risk management Financial reporting (IFRS) Issue management PENSION Grip and control Economies of scale

25 Perspectives on pensions ECONOMIES OF SCALE Governance Quality improvements Access to top quality resources Single platforms Issue management PENSION Grip and control Less management time Economies of scale

26 Perspectives on pensions ISSUE MANAGEMENT Governance Solutions for senior management Solutions for mobile employees M&A related issues Flexible financing Issue management PENSION Grip and control DB schemes Economies of scale

27 IORPs Institutions for Occupational Retirement Provisions

28 IORP s

29 Institution for Occupational Retirement Provisions (IORP) Pension schemes in various countries A country country B C country regulated through social and labor law of country where employees are located ( Host country )

30 Institution for Occupational Retirement Provisions (IORP) Pension schemes in various countries A country country B C country regulated through social and labor law of country where employees are located ( Host country ) regulated by the country of domicile of the pension institution ( Home country )

31 Institution for Occupational Retirement Provisions (IORP) Pension schemes in various countries A country country B C country regulated through social and labor law of country where employees are located ( Host country ) regulated by the country of domicile of the pension institution ( Home country )

32 Institution for Occupational Retirement Provisions (IORP) IORP balance sheet 105% Additional assets Regulatory own funds Source: Hewitt Associates 100% Assets Technical provisions Fully funded (regulated in IORP directive)

33 Institution for Occupational Retirement Provisions (IORP) 105% IORP balance sheet Additional assets Solvency buffers Additional assets Regulatory own funds Security mechanism (NOT regulated in IORP directive) Source: Hewitt Associates 100% Assets Technical provisions Fully funded (regulated in IORP directive)

34 Institution for Occupational Retirement Provisions (IORP) IORP balance sheet Security mechanism (NOT regulated in IORP directive) Additional assets Solvency buffers 105% Additional assets Regulatory own funds Source: Hewitt Associates 100% Assets Technical provisions Fully funded (regulated in IORP directive)

35 Barriers for IORP s success Power of unions Fiscal law Social & labor law Providers capabilities/strategies Multi-lingual: complex Cost of implementation

36 Opportunities for corporates Professional governance Grip and control Liabilities Cost Economies of scale Salvage burning platforms

38 European pension landscape Diversified Rules & regulations Systems and scheme design à Grip & control will pay off à Centralization through pooling

39 Scheme design Europe USA SYSTEM DB idc Consumer approach Paternalism (push) Libertarian paternalism Mature clients (pull) Extent of pooling Mandatory, collective, and solidaristic Auto-enrollment, auto-escalation, collective None: voluntary, and individually Expenses Low(est) cost Low cost More expensive Customized Uniform Defaults (life cycle, partial annuity) Freedom of choice Hardly any Limited (opt-out of default) Governance Social partners Independent professional board Flexible, tailored, cocreation Maximized Supervision by government Transparency Source: PGGM (2010) Increased communications Communication and education Legislation and education

40 European labor landscape Battle for talent Retain older talent, attract young talent New values and standards à Employer s choice à scheme design à Employer s role à facilitate & engage

41 European benefit landscape Holistic approach Life events / lifecycle planning / ialm Healthcare-Housing-Pensions Financial literacy à Enhanced solutions à Individual choice & responsibility

42 Harry Smorenberg CEO, Smorenberg Corporate Consultancy Harry is a financial services marketing and positioning strategist. He previously worked at Banque Paribas and ABN AMRO and was a director at two leading strategic consultants. He is a leading contributor to ideas on new payment systems, web and mobile banking, and cash and treasury management. He has also been actively involved for many years in developing financial planning, employee benefits and international pensions, in catalyzing financial institutions into developing vision and strategies, and in identifying and implementing client-centric solutions. He is a columnist and guest speaker, sits on several advisory boards and regularly publishes in leading international media. Other functions Member of the International Advisory Board of the Europe - China Institute, Nyenrode University Chairman Editorial Advisory Board of Banking & Finance Europe Founder & Chairman of the International EPCA Payment Summit Founder & Chairman of the WorldPensionSummit CFO of the foundation "Stichting Drie Dolfijnen" (charity fund) SCC Harry H.G. Smorenberg PO Box LB Amstelveen The Netherlands harry@smorenberg.nl Phone: Pieter J. Kiveron MBA Holland Financial Centre Pieter is a highly experienced pension specialist, with an extensive network in the financial services industry. He graduated from Haarlem Business School (BEc, 1984), Webster University (MBA, 1999). Since starting his career in pensions about 25 years ago he has worked nationally and internationally in various management positions for insurance companies, as an independent consultant and as Chief Commercial Officer for one of Europe s largest third-party pension providers. He has assisted large multinationals to design and redesign pension schemes and international pooling. On the supplier side he has successfully structured new products. He focuses on the business side of pensions, advising on strategy and distribution. Other functions CEO/Owner Penthièvre Mondial B.V. Partner of VANDERSCHOOT&WESTERBRINK INSEAD Alumnus (IEP 2004) Network member of the Social Affairs Committee of the Dutch People s Party for Freedom and Democracy (VVD)