Pensions in EuropeA personal perspective on some important developments

by Falco ValkenburgIndependent ActuaryChairperson Pensions Committee of the Actuarial Association of EuropeMember of the Occupational Pensions Stakeholder Group

of the European Insurance and Occupational Pensions Authority

FIAR PRIVATE PENSIONS ConferencePoiana-Brasov, 24 May 2017

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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 …”

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

Pensions 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

Total 25.6 27.1

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 20601.00

1.50

2.00

2.50

3.00

3.50

4.00 IEFRUKSEBEDKFIROCZ

Demographic background for EU

Total fertility rates 1960-2060 for selected EU member states

Point of convergence(level UK and Sweden)

Demographic background in EUMale expectation of life at 65 to 2060 in selected countries

2013 2020 2030 2040 2050 206014.0

15.0

16.0

17.0

18.0

19.0

20.0

21.0

22.0

23.0

24.0 FRESSEITUKIEDENLATBEPTDKSICZ

Demographic background in EUFemale expectation of life at 65 to 2060 in selected countries

2013 2020 2030 2040 2050 206017.0

18.0

19.0

20.0

21.0

22.0

23.0

24.0

25.0

26.0

27.0 FRESITFIATBESEDEIENLSIUKDKEEPL

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 cohortexpectations of life. Difference of about 2.6 years at age 65.However, cohort expectations often not published.

Projection of net migration flows2013-2060

Net migration flow in 2020 (000s)

Cumulative net migration 2013-

2060

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 2060

2013 2020 2030 2040 2050 20600.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0 PT

PL

DE

EE

ES

IT

RO

AT

CZ

NL

FI

FR

UK

DK

SE

BE

IE

Demographic background in EU

Old-age dependency ratios in some countries, 2013 to 2060Adjusted for retirement age rising from 65 to 70

2013 2020 2030 2040 2050 20600.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0PT

DE

PL

SI

ES

IT

RO

AT

NL

EE

FR

FI

UK

SE

DK

BE

IE

Demographic background in EUPension age to maintain cohort expectation of life (UK)

Year Expectation of 21.6 for males

Expectation of 24.3 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

Over 50 yrs 1.2 per decade 1.1 per decade

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 ReportPublic 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

Total EU (weighted)

–8.1 Denmark +7.5

Benefit ratio is ratio of average pension to average wage.

Pension Adequacy Report 2015

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

Striking comment in the 2015 Ageing Report:

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

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Australia

Example linking current themes(Energy) Savings resulting in additional (Pension) Savings

• Engagement• Sustainability• Return• (Local) Economy• Environment• Communication• Member-focus Makin

g pensio

n savin

gs

releva

nt now

Member Communit

y

Member Communit

y

Member Communit

y

Member Communit

y

Member Communit

y

Member Communit

y

Membersof pension arrangeme

nts

Membersof pension arrangeme

nts

Energy fund

(investment fund)

Energy fund

(investment fund)

SupplierSolar

panels/ Wind mills

Consultancy

Insurersand / or

Pension Funds

Engineering

• 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, …

LocalCooperativ

es

LocalCooperativ

es

Member Communit

y

Member Communit

y

Community of CommunitiesCommunity of Communities

Community Platform

Exte

rnal S

erv

ic es Po

rt als

Exte

rnal S

erv

ic es Po

rt als

• We could benefit individually• We could benefit collectively• We could change society

Empowering the membersfrom 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

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Newsflash:

Foxconn has a factory for 20,000 workers building 1,000,000 robots that make 500,000 workers unneccessary

Pension

Health

Housing

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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

Making pension savings relevant now

I see a very relevant role for innovative insurers and pension funds

My Charcoal Sketch

BASIC INCOME+

Individual savings (collectively managed)+

ENCORE! – programme

“Creating a Life & Work You Love and Never want to Retire from”

Falco ValkenburgBunsinglaan 3a, 3709 JN Zeist, The Netherlands+31 (0)6 22 78 50 29, hello@falcovalkenburg.eu

www.falcovalkenburg.euTwitter: @falcovalkenburg, Skype: frvalkenburg