EUROPE - The presence of private pension funds on financial markets plays an important stabilising role in the financial system as a whole, according to Gertrude Tumpel-Gugerell, member of the executive board of the European Central Bank (ECB).
She said: "This contribution to improving the overall functioning of the financial system may in turn foster a smoother transmission of monetary policy."
In terms of pace the industry's growth, she added, over the period 2004-2006, the latest available data indicated Eurozone pension fund assets grew on average by 13.6%, compared with 9.0% for all OECD countries.
Not withstanding the current period of turbulence, she said this dynamic growth was likely to have continued in many economies.
Because of the tendency of many governments to reduce benefits relative to contributions to public pension schemes, individuals would be increasingly supporting their old-age consumption via alternative, private pension plans and life insurance policies.
Tumpel-Gugerell saw in this context "a need for public authorities to foster conditions that encourage and are conducive to saving, particularly in countries with a strong ageing of the population".
However, she said there was a crucial need for adequate information to households.
Recent developments in financial markets supported the view that households might not be in a position to make informed choices, owing to a lack of financial sophistication, she added.
Discussing the role of the ECB, she commented: "A credible and stability-oriented monetary policy focused on preserving price stability over the medium to longer-term is nonetheless the central bank's most important contribution to ensure that pension funds accomplish stable and predictable returns on their investments and maintain their crucial role as an important source of funding for the rest of the financial sector."
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Self-administered pension funds spent £15bn on payments to pensioners in Q4 2018, but received just £12bn in contributions (net of refunds), Office for National Statistics (ONS) data reveals.
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