Long Term Savings A comparative survey of 6 EU countries and the US

Transcription

1 Long Term Savings A comparative survey of 6 EU countries and the US Brussells, EFAMA-CARMIGNAC GESTION October 4th,

2 Agenda The EU pension market : a few facts and figures National pension markets in France, Germany, Italy, Netherlands, Spain, UK and the US : key trends Does the EFAMA Officially Certified European Retirement Plan (OCERP) already exist? How to accelerate its development? 2 2

3 The European Pension Market A few facts and figures 3 3

4 The EU faces 3 challenges regarding pension systems The 3 EU pension challenges Meeting social needs in a ageing society Changing pension systems Facing financial and economic crisis Life expectancy in the EU : average + 5 years since 1960 / expected + 7 years in the 50 coming years Old-age dependency ratio in the EU : from 4 people of working age / 1 person over 65 today to 2 / 1 in 2060 Family is no longer the only solution Encourage people to work longer Develop alternatives to PAYG systems while secure adequacy of multi pillar models Ensure solidarity towards more vulnerable individuals Secure PAYG systems while facing increased public debt and lower growth Evaluate efficiency and sustainability of tax incentives to stimulate private schemes Ensure appropriate solvency rules applicable to funded schemes without endangering their attractiveness to sponsors and financial industry Accompany necessary switch from DB to DC 4 4

5 The First Pillar is and will not be sufficient Evolution of the benefit ratio from 2007 to 2060 (evolution in % points) 10% 5% 0% -5% -10% -15% Romania Evolution of the benefit ratio * ( ) United Kingdom 0% 10% 20% 30% 40% 50% 60% 70% 80% Netherlands Slovakia Portugal Germany Austria Spain France Benefit ratio in % Sweden Italy -25% -30% bubble size 2007 total population Poland -35% * Average benefit of public pensions as a % of average wage 5 5

6 The Second and Third Pillars development is unsufficiently monitored at EU level Consolidated data on funded schemes (occupational or private) unavailable at EU level Frontier between pension funded schemes and savings is unclear in most countries What we know : 2d pillar Retirement assets (Investment / Insurance) in 20 EU countries for which data is available amount to a minimum EUR billion in 2008 and are expected to grow at an average 5-6% p.a. until at least 2020 DB schemes are under pressure and DC take an increased share of occupational schemes Better financial control for employers Adjusted to mobility 60 million European citizens are said to be currently covered by a DC scheme In most countries, Coverage increases with income which raises questions on future adequacy Example : coverage rate by decile of income in Germany (1-45%, 5-64%, 10-80%), in the UK (1-8%, 5-44%, 10-70%) No overall significant discrepancy in the EU as a whole between male and female coverage levels 6 6

7 National Pension Markets France, Germany, Italy, Netherlands, Spain, UK and the US Key trends 7 7

8 A fragmented and heterogeneous picture Population : 61,3M 76,7M Old age dep. ratio : 24,3% 42,11% Benefit ratio : 35% 37% Public system reform : Pensions market maturity : Compulsory/coverage 2d pillar : MEDIUM Population : 16,4M 16,6M Old age dep. ratio : 21,8% 47,2% Benefit ratio : 68% 47% Public system reform : Pensions market maturity : Compulsory/coverage 2d pillar : HIGH Population : 310,3M 420M Old age dep. ratio : 20,6% 39,6% Benefit ratio : 40% Public system reform : : Pensions market maturity : Compulsory/coverage 2d pillar : MEDIUM Population : 61,9M 71,8M Old age dep. ratio : 25,3% 45,2% Benefit ratio : 63% 48% Public system reform : Pensions market maturity : Compulsory/coverage 2d pillar : LOW Population : 82,2M 70,8M Old age dep. ratio : 30,3% 59,1% Benefit ratio : 51% 42% Public system reform : Pensions market maturity : Compulsory/coverage 2d pillar : MEDIUM Population : 59,5M 159,4M Old age dep. ratio : 30,5% 59,3% Population : 45,3M 51,9M Benefit ratio : 68% 47% Old age dep. ratio : 24,1% 59,1% Public system reform : Benefit ratio : 58% 52% Pensions market maturity : Public system reform : Pension market maturity : Compulsory/coverage 2d pillar : LOW EU and US estimates Compulsory/coverage 2d pillar : LOW 8

9 The pension market maturity is reflected in the share of pension assets and average pension benefits, but part of the picture can be a «false» 3d pillar 100% Share (%) of pension and insurance assets in the total financial assets of private households (2007) 80% 60% 58% 55% 40% 20% 38% 26% 17% 14% 35% 35% 0% Pension benefit as % of final earnings <5% ~15% <5% 20-30% <5% 20-30% ~40% 9 9

10 it is thus important to cross-check with the coverage and assets per capita of occupational pension schemes to assess real market maturity Occupational pensions voluntary schemes (2 nd pillar, 2008) COUNTRY Assets as of 2008 (in millions euros) Per capita (in euros) Coverage of active population (%) 121,859 1,965 15% 438,030 5,341 60% 57, % 577,519 35,214 90% 77,340 1,707 8% 1,202, ,608 47% 6,200,000 20,002 61% 10 10

11 France : key trends French pensions market looks very different with or without Individual Life Insurance savings products (AUM EUR billion) : are they going to be migrated to real pension schemes? The 2 dedicated pension products created in 2003 have contrasting destinies PERP : private. Fast start, but running out of steam? 2,1 million French covered (+2% vs 2008), EUR 5,3 billion AUM (+31% vs 2008), EUR 1,1 billion inflows (+2%vs 2008) PERCO : occupational. Gaining momentum 2,5 million employees covered (+26% vs 2008), EUR 3 billion AUM (+63% vs 2008), Inflows trend +50% vs 2009 Latest trend to encourage occupational systems recycling unused holidays linked to Working Time reduction («The 35 hours law») into long term savings DB schemes under regulatory pressure due to top executives abuse In the occupational sector, PERCO prefered by employers to collective insurance DC contracts (Article 83 / PERE) 11 11

12 Germany : key trends Employer are required to provide access to a workplace pension scheme otherwise the company will have to offer access to DirektVersicherung In the occupational sector, large population covered by industry-wide funded systems No full DC systems as plan sponsor must guarantee at least amounts invested CTAs and Pensionsfonds to take DB/DC occupational market Riester are gaining momentum as Private Life Insurance savings products become less attractive Riester, 13 million German covered (70% of employees) ; modest inflows to start with, fast growing due to tax relief Rürup pensions dedicated to self-employed count 630,000 affiliates after two years but seem lacking momentum Some unions asking to re-assess validity of the «Riester» factor, introduced in 2004 in the pension reform and linking replacement rate of public PAYG system to increase in funded schemes contributions. Yet, it is the most important pressure factor for 2d pillar development 12 12

13 Italy : key trends Italy has the highest public pension spending of OECD countries First closed funds in 1997, first open funds in 1998 In the occupational sector, the initially important marketshare of old closed pre-existing funds that cannnot accept new members is droping down An increasing number of funds are converted into defined contribution schemes Employees covered by closed funds are now allowed to join open pension funds The 2005 reform aiming at strengthening occupational pensions by re-directing so called Trattamento di Fine Rapporto (TFR) contributions to pension funds had a limited effect (1/4th of eligible employees have volunteered so far, which means that a lot of assets might fly to government pension fund) but had a important impact on the quality of offers, especially occupational Life insurance assets still important in households saving structure, share of occupational products expected to increase strongly 13 13

14 Netherlands : key trends 90% of the employees covered by funds (industry-wide, companyspecific and professional group specific) for the provision of occupational old-age pensions and early retirement schemes (VUT), In the Netherlands, it is often called quasi-mandatory for employers to provide employees with a pension plan. The social partners have achieved almost universal occupational pension provision i through the collective bargaining system It is compulsory for individual companies to participate in the pension scheme concluded in a industry-wide labour agreement The Netherlands are a DB market, that has switched from final pay schemes to average career schemes Over the past years, a tiny trend towards DC plans has emerged 14 14

15 Spain : key trends A market where funded schemes have a very slow start, due to cultural preference for real-estate and a still high benefit ratio Yet, a strong basis for long term savings development has been set up, both in the occupational and private sectors Occupational and private tax incentives are common and the ceiling varies according to the beneficiary s i age Today a minor part of the population is covered As the age issue will become crucial, and negotiation on PAYG system drag on, long term savings will take growing marketshare, may be with a differed start 15 15

16 United Kingdom: key trends The UK has the lowest public pensions in the 30 OECD countries Changes to public pension system since 1997 have increased future benefits for low earners nevetheless individuals need to save their own retirement Since 2001, employers with 5 or more employees must provide access to a Stakeholder Pension, a third pillar scheme or an occupational scheme About 60% of employees are contributing either to occupational or personal pension schemes In DC plans People covered save around 9% of their pay on average The defined benefit schemes dominate the overall asset volume and number of members, but there is a shift from defined benefit to defined contribution plans : in % of defined benefit schemes were closed to new members 2/3 of private sector companies offer a defined contribution plan Reasons : financial crisis, better calculability of costs, reduction of plan costs, reduction of investment risk exposure Automatic enrollment with mandatory contribution (3% employer + 3% employee) will occur in 2012 unless a political decision postpones it 16 16

17 United States of America: key trends (1/2) Occupational defined contribution plans today are the core of US retirement system Transfer between DC plans and IRAs (individual products) called Rollover are essential for the success of the system. 46% of IRA assets come from rollovers The number of DC plans and participants has grown rapidly since the mid eighties (7.5 millions in 1984, 25 mil in 1994, 44.4 mil in 2004, over 60 mil in 2010) It is estimated that employer sponsored plans will provide larger retirement benefits than Social security for the Baby-boom generation The most popular plan is the 401K, but 60% of companies use several DC or DB plans Automatic enrollment is increasing and seems efficient Despite the crisis and the extreme volatility, the saving and investment behavior of DC plan participants changed only marginally Americans are well aware of how unprepared they are for retirement but the adequacy is low (401K average USD , median USD ) The introduction of automatic IRAs could have an important market impact 17 17

18 United States of America: key trends (2/2) The QDIA (Qualified Default Investment Alternative) regulation (Pension Protection Act 2006) has a major influence on default investment strategies for plans offering automatic a enreollment eo e : rising prominence of automatic investment solutions : target date funds, balanced funds, advisory services, managed accounts 75% of plan sponsors offer target date fund «By 2015, target date funds are set to emerge as the largest asset class, capturing nearly 40% of assets and majority of the flows» McKinsey&Co 25% of participants use them in 2009 (7% in 2004) Only 1% of plans use money market fund as their default investment down from 25% in 2005 The number of investment options increases (15 in 2001, 25 in 2010) even if beneficiaries are still investing in an average of 3 funds «But in the mind of many plan sponsors and consultants (as well as regulators), target- date funds failed to deliver during the financial crisis.» McKinsey&Co 18 18

19 Main products matching EFAMA standards Does the Officially Certified European Retirement Plan (OCERP) already exist? 19 19

20 Four broad areas in OCERP design Governance Certification framework Transparency on all costs Transferability/Portabili ty across providers, pillars and member states Flexibility Individual and segregated accounts Investment risk Menu of options for the accumulation phase (incl. guarantees, lifestyle, ) The payout phase (incl. drawdown plans, variable/deferred annuities, ) Officially i Certified European Retirement Plans Cost efficiency Economies of scale Level playing field Individual Choice Limit the choice set available Include mechanisms to facilitate choice Offer a default investment option 20 20

21 Key findings on countries «OCERP maturity» Countries that have developped products close from OCERP standards share the following characteristics : Awareness of the necessity to develop funded 2d and 3d pillars due to unsufficient pre-existing 2d pillar or 2d pillar DB-type funding issues Co-design of a couple of DC type 2d and 3d pillar, with compatible tax advantages Trend towards mandatory enrolment Incentive e to various investment e t options o designed ed to help beneficiaries e es to manage age their segregated account But the existence of products matching OCERP standards does not necessarily mean that the local pension market is already mature As a conclusion, it seems relevant to : Rank countries on a «Pension market maturity» / OCERP Standards compliance matrix Identify key local best practices to be encouraged everywhere Isolate areas EU action could be useful 21 21

22 Pension market maturity / EFAMA standards Pension marke etmaturity LO OW MEDIUM M HIGH OCERP Standards compliance LOW MEDIUM HIGH Pension funds - Personnal plans Quasi-mandatory renewed DB-type 2d pillar, making DC type plans less crucial. Existence of an individual DCtype plan coherent with the 2d pillar Fundi Penzioni-PIP A pension market of a growing maturity, with a trend towards OCERP standards Pension funds / PPP Very high standard due to historical low 1st pillar. Going ahead for mandatory enrolement PERCO-PERP Some efforts to be made to facilitate 2d pillar development and transferability between 2d and 3d pillar / between Life insurance and 2d pillar 401K-IRA Very high standard due to historical low 1st pillar. Transferability between 2d and 3d pillar fully achieved Pensionfonds -Riester Coherent build-up of renewed 2d and 3d pillars allowing transition to DC-type schemes. Tax treatment coherent between pension savings and medium term savings Planes de pensiones Planes indiviuduales An immature pension market, yet the beginnings of an DC-type architecture show 22 22

23 As all countries can improve their standards, some key local best practices can be encouraged (1/2) Best practices ces Countries Early individual communication on retirement precaution importance by public pension authorities Develop compulsory second pillar mechanisms Managers retirement precaution linked to collective scheme implementation and/or industry-wide negotiation and/or firm-by-firm automatic enrolment with opt out Mix fixed contribution with voluntary / punctual investments : Incentive voluntary conversion of working time into long term savings Convert performance bonuses (profit sharing ) Convert various lump sums into long term savings Focus state contribution towards more vulnerable households 23 23

24 As all countries can improve their standards, some key local best practices can be encouraged (2/2) Best practices ces Countries Individual choice : Offer investment options with automatic asset management, designed by industry professionals Default investment option in targeted or diversified fund (not money market) Governance : Individual and segregated accounts even in life insurance Investment risk : Pay out phase : lump sum and/or annuities and/or transfer to personal plans Restriction in the employer equity Cost efficiency : Allow all types of actors (Asset Managers, Insurers, Banks, IORPs) to compete 24 24

25 And EU actions should focus on the following priorities Reinforce public education on retirement precaution : awareness Launch the framework initiative : quality standards development Promote open environment / competition : cost efficiency / product quality 25 25

26 Thank you for your attention Appendixes Country scorecards Product details Sources Methodology Contact 26 26

27 FRANCE scorecard Population Old age dependency ratio Benefit ratio Public pension system reforms (recent major dates) 61,9M 71,8M (+9,9M) 25,3% 45,2% 63% 48% (-15 points) 2003 / 2010(exp.) -? Funded schemes market size EUR 127 billion in occupational and private (end of 2009) + EUR billion in Life Insurance Key products Art 39 & IFC (occupational, DB) Art 83, PERE, PERCO, Madelin (occupational, DC) Life Insurance, PERP (private, DC) 27 27

28 SCHEME PERCO Article 39 Article 83 / PERE PERP Type OCCUPATIONAL PRIVATE DC/DB Assets (in billions, 2009) DC DB DC DC Auto enrolment+opt out Auto enrolment Auto enrolment 3, ,5 5,2 Beneficiaries (in millions, 2009) 2,5 (14% of the private sector s employees) 1,0 2,5 2,1 Contribution Employee: Up to 25% of the annual gross salary Employer: matching contribution of maximum 300% of the employee s contribution, cap at Employer : up to 5% of wages with social exemption Employer only, depending on the liability Employee : up to 8% (incl. Employer contribution) with tax exemption Depends on the insurance contract Pay-out phase Lump sum or Annuity Annuity Annuity Investment rules No employer equity wide range of choice Wide range of choice No more 50% of equity Tax Scheme EE-lowT TET EET EET Trends = = 28 28

29 GERMANY scorecard Population Old age dependency ratio Benefit ratio Public pension system reforms (recent major dates) 82,2M 70,8M (-11,4M) 30,3% 59,1% 51% 42% (-9 points) ? Funded schemes market size EUR 1074 billion in occupational and private (end of 2007) Key products Direktzusage, Direct insurance, Unterstützungskasse, Pensionskassen, Pensionsfonds, CTAs (occupational, DB) Pensionsfonds, [CTAs] (occupational, DC) Riester, Rürup (private, DC) 29 29

30 SCHEME Direkt zusage Direct insurance Unterstützu ngkasse Pension kassen Pension fonds Riester Pension Rürup Pension Type OCCUPATIONAL PRIVATE DC/DB Assets (in bil,2007) Members/ Beneficiaries Contribution Pay-out phase Investment rules DB opting in DC/DB opting in DB opting in DB opting in DC/DB opting in Determined by collective agreements Employer /employee contribution not mandatory up to 4% of the social security ceiling 6,0/1,2 0,4/0,2 13,0 0,6 DC 66% deduction up to a ceiling at EUR increasing to ( for a couple) by 2025 Lump sum or life-long long annuity. Full lump sum are not allowed Annuity or programmed Annuity or lump sum No lump sum for PensionFonds withdrawal (30% max) (30% max) Max 35% equity, max 25% real estate, max 50% bonds, loans, deposits, max 30% international Employer must guarantee at least contributions in DC type plans Tax Scheme EET EET, with reinforced state contribution for low earners and families Trends = EET 30 30

31 ITALY scorecard Population Old age dependency ratio Benefit ratio Public pension system reforms (recent major dates) 59,5M 59,4M (-0,1M) 30,5% 59,3% 68% 47% (-9 points) 1993 (closed and open funds, effective 1997) 2000 (legal framework for PIP) (TFR reform, effective 2007) Funded schemes market size EUR 435 billion in occupational and private (end of 2007) Key products Fondi pensione preesistenti (occupational, DC and/or DB) Fundi Penzione negoziali, (occupational, DC) Fundi pensione aperi (occupational or private, DC) Polizze individuali pensionistische so called PIP (personal DC), Life Insurance (personal, DC) 31 31

32 SCHEME Fondi pensione preesistenti Fondi penzioni negoziali (closed) Italy Fondi pensione aperti (open) PIP : indiv pension plan (life insurance) Type OCCUPATIONAL OCC or PRIVATE PRIVATE DC/DB DC and/or DB automatic enrollment DC automatic enrollment DC automatic enrollment Assets (in bil 2009) Beneficiaries (in millions, 2007) 0.65 (no new members) Contribution Employer contribution (accordding to the collective agreement) and employee contributions + possbility to invest TFR (7,4% of the employee s salary) Some can receive TFR Pay-out phase Tax Scheme Governance Investment rules Investment options TFR : annuity or lump sum (max 50%), others annuity only Benefits received as a cash advance for buying house or for other reasons or as a lump sum in case of voluntary dismissal are taxed less favorably Employee and Employer contributions are tax deductible up to 12% of taxable income 5,164 EUR. TFR is excluded from this limit Gov board + board of auditors (paritarian basis) investment management outsourced +compliance checl Contractual form, no legal personality no limit for bond and equity investments in OECD member countries, but maximum 15% in a single issuer, 5% in non OECD, 20% in the sponsoring employer 3 to 5 investment options (risk level); precondition for receiving TFR = 1 option with guaranteed return Assets separated with those of the insurance company Trends 32 32

33 NETHERLANDS scorecard Population ,4M 16,6M, (+0,2M) Old age dependency ratio Benefit ratio Public pension system reforms (recent major dates) Funded schemes market size 21,8% 47,2% 68% 47% (-9 points) EUR 923 billion Key products Pension finds (occupationnal, mainly DB) Personnel plans (private, DB/DC) 33 33

34 SCHEME Pension funds Personnal plan Type OCCUPATIONAL PRIVATE DC/DB DB in majority (DC or mixed possible) DB/DC at Assets (in bil 2009) Beneficiaries i i (in millions, 2007) Contribution Pay-out phase Tax Scheme Governance Investment rules Investment options 5,9 0,9 2/3 by employer, 1/3 by employee ~16,1% of gross wage Tax exemptions limited to 2% (average career plans) or 2,25% (final salary plans) replacement rate gained per year Lump sum or annuity with tax deduction EET (if annuity incl pension benefits <= 100% last wages) Board at industry-wide level with half employee and half employer repreesentatives Council with employees and retirees Max 10% in the employer equity, Annual solvency test with 2,5% risk max of funding ratio falling <100%. 3 year continuity test NA Contributions deductible up to EUR additional if benefiit ratio 1st & 2d pillars <70% Trends = Annuity EET 34 34

35 SPAIN scorecard Population Old age dependency ratio Benefit ratio ,3M 51,9M (+6,6M) 24,1% 59,1% 58% 52% (-6 points) Public pension system reforms (recent major dates) 1995 (Toledo Pact) ? Funded schemes market size Key products EUR 82 billion + EUR billion collective insurance contracts Planes de pensiones (occupationnal, DC, possibly DB) Planes de jubilacion (occupationnal, DC) Planes individuales (private, DB) 35 35

36 SCHEME Planes de Pensiones Planes individuales Planes de jubilacion Type OCCUPATIONAL PRIVATE OCCUPATIONAL DC/DB DC, possibly DB DB DC Assets (in billions, 2007) 30,5 50,3 Est within the 134 billion Life Insurance assets Beneficiaries (in millions, 2007) 1,7 (8% of the private sector s employees) 8,6? Contribution Employee + Employer : EUR p.a. < 50 years old tax deductible EUR p.a < = 50 years old tax dd deductible No limit Pay-out phase Lump sum or Annuity Annuity Tax Scheme EET Trends = 36 36

37 UNITED KINGDOM scorecard Population Old age dependency ratio Benefit ratio Public pension system reforms (recent major dates) Funded schemes market size Key products 61.3M 76.7M (+15,4M) 24,3% 42,11% 35% 37% (+2 points) 2002 : introduction of the S2P (State Second Pension) to provide more generous pension provision for workers with possibility to contract out of additional pension with an occupational ou personal pension plan 1999 : Pensions Act laid down rules concerning on stakeholder pensions (effective 2001) 1995 : occupational pension schemes Pension Act 1988 : introduction of personal pension plans 1,410 billion EUR 47% of employed population is covered by occupational plans 60% of employees are in contracted-out schemes (occupational or personal) Occupational voluntary : pension plans (DC or DB), Personal voluntary : personal pension plans (contract-based DC plans), stakeholder pensions 37 37

38 SCHEME Pension funds Stakeholder pension United Kingdom Type OCCUPATIONAL PRIVATE Personal pension plan DC/DB DC and/or DB automatic enrollment + opting out in 2012 DC Assets (in billions) 1, Beneficiaries (in mil) DB : 22.2; DC : in Contribution Pay-out phase Tax Scheme Governance Investment rules Employers and employees can contribute; + additional voluntary contributions DB : employee average of 6%, 10% by employer DC : average of 6% employer, 5% by employee Lump sum (max 25%) the rest as annuities Employee contributions are tax exempt. Investment returns are free from income and capital gains tax. Lump sum are tax free Trustees outsource investment management to external providers 1/3 of trustees nominated by the members, 2 employee trustees in schemes with over 100 members max 5% in sponsoring company No legal maximum level Regularly or as one-off Up to 25% as lump sum, the rest as annuities The saver may appoint a beneficiary For every pound paid in the tax authorities will pay an extra 28 pence into the accoiunt up to the level of a person s salary (max ). Possible to contribute into a stakeholder plan even for people who have no earnings. Lump sum is tax free Default investment option which has to include a lifecycle investment pattern (lee risky from 5 years before retirement) Wider range of investments than stakeholder pensions Trends DB DC 38 38

39 USA scorecard Population ,3M 420M (+110M) Old age dependency ratio ,6% 39,6% Benefit ratio % Public pension system reforms (recent major dates) 2006 : Protection pension act 1981 : the Economic Recovery Tax Act (ERTA) allowed all taxpayers under the age of 70½ to contribute to an IRA, regardless of their coverage under a qualified plan 1978 : Internal Revenue Code amended with section 401(k) whereby employees are not taxed on income they choose to receive as deferred compensation rather than direct compensation 1974 : ERISA creates the IRAs. Taxpayers could contribute up to $1,500 a year and reduce their taxable income by the amount of their contributions. Initially, ERISA restricted IRAs to workers who were not covered by a qualified employment-based retirement plan Funded d schemes market size DC : 6,200 billions $, DB : 2,100 billions $ IRA : 4,200 billions $ Key products Individual Retirement Account (IRA) 401K (DC), ESOP, profit sharing, cash balance 39 39

40 SCHEME 401K Other DC plans : ESOP, money purchase Private DB plans: cash balance IRA traditional, roth, simple Type OCCUPATIONAL/ VOLUNTARY INDIVIDUAL/ VOLUNTARY DC/DB DC DC DB Assets (in billions) 2,754 1,400 2,100 4,200 (trad 3,722) Beneficiaries (in mil) Contribution Employees are the main source of funding, they can contribute up to 25% of their salary, to the plan up to 16,500$ (22,500 for employess aged 50 and over). The deferral rate Employer can contribute or only match up to 50% (max 6% of pay). In average 80% of employers match, 3% of salary Federal rules set amouts that employers must contribute to plans. Generally employees dot not contribute Pay-out phase Transfer to IRA, lump sum or annuities Mostly annuities Tax Scheme Governance Investment rules Employer contributions are not subject to social security contributions. Employee contributions are exempt from income tax up to 16,500$ Non discrimination rules to allocate rights and benefits equitably More than 10 investment choices in general ESOP : primarily in employer stock Employer contributions aree tax exempt up to a level whic allows a pension of 195,000$ No choice Up to 5,000$ per person (6000$ for those who are age 50 or older) SIMPLE : in companies with less than 100 employees, the employee can conribute up to 11,500$ with a possible match of the employer up to 3% of salary; employer can contribute up to 2% of salary By age Minimum withdrawal equals account balance divided by life expectancy Often tax deductible Transactions and earnings have no tax impact (see details slide 42) Wide range of investment Trends 40 40

41 SCHEME 401K (Vanguard stats) Type Contribution OCCUPATIONAL/ VOLUNTARY - 9% of plans with no employer contribution - 50% of plans with matching contribution only - 33% with both matching and nonmatching contribution - 8% with nonmatching contribution only Match type - in 74% of plans is 50% on 6% pay - in 17% : 100% on 3% Employee deferrals : - participants save 6,8% of their income Participation i rate -75% of eligible ibl employees choose to make voluntary contributions tib ti Automatic enrollment Investment options Assets -21% of plans - Deferral rate is 3% in 57% of plans - Increase rate is 1% in 74% of plans - Target date fund 90%, other balanced fund 9% -25funds offered in average - 3 funds used by participants - Average = $ - Median = $ - 66% in equities, 10% in company stock, 9% in targetdate funds 41 41

42 Different types of IRA Roth IRA - contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free free. Named for Senator William V. Roth, Jr.. The Roth IRA was introduced as part of the Taxpayer Relief Act of Traditional IRA - contributions are often tax-deductible (often simplified as "money is deposited before tax" or "contributions are made with pre-tax assets"), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be referred to as a "deductible IRA" or a "non-deductible IRA." SEP IRA - a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee's name, instead of to a pension fund account in the company's name. SIMPLE IRA - a simplified employee pension plan that allows both employer and employee contributions, similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately. Self-Directed IRA - a self-directed IRA that permits the account holder to make investments on behalf of the retirement plan

43 Methodology We used the traditional three-pillar typology : first pillar refers to statutory t t schemes second pillar to occupational schemes and third pillar to individual schemes As it is difficult to distinguish among different types of saving products those that are clearly for retirement purposes, p we analysed those which are specifically labeled as pension savings even if some national rules allow beneficiaries to use assets for other purposes (lump sums benefits, early withdrawal options) As a consequence, this study does not cover long term savings which are exclusively taken as lump sums (such as private life insurance products) To ensure data coherence, we systematically y preferred EU data regarding g Demographics and First pillar assessment (except US : CRS Report for Congress), though other sources, available for some countries, might prove more accurate 43 43

44 Sources «Private Pensions Outlook» by OECD 2008 «Green Paper - towards adequate, sustainable and safe European pension systems» by the European Commission July 2010 EU «Ageing Report 2009» Survey «Workplace pensions Defined Contribution» by the EFRP (European Federation for Retirement Provision) March 2010 «Annual Report 2010» by the EFRP «Privately Management Funded Pension Provision and their contribution to adequate and sustainable pensions» Report by The Social Protection Committee «The US Retirement Market 2009» Research Fundamentals by the ICI (Investment Company Institute) Statistics ti ti (Form 5500 filings) by the US Department t of Labor «Funded Pensions in Western Europe 2008» International Pension Studies by Allianz 2009 «Defining the Direction of Defined Contribution in Europe» International Pension Studies by Allianz - April 2009 «Revisiting the landscape of European long-term savings» Survey by the EFAMA March 2010 «How America Saves 2010», a report on Vanguard 2009 DC Plan Data «Dimensions of 401K Plan Design», a working paper By the Pension Research Council 2005 «Winning i in the Defined Contribution ti Market of 2015» a survey by Mckinsey&Co 2010 Internal Revenu Service (IRS) and United States Department of Labor documentation CRS Report for Congress. Age Dependency Ratios and Social Security Solvency Various country Insurers and Asset Managers Associations 44 44

45 Contacts For any question on this survey, please contact DEBORY Corporate Retirement and Saving schemes, Shareholding schemes, Employee benefits +33(0)