EUROPE - The economic crisis could quicken the pace at which companies shut down their defined benefit (DB) plans in favour of defined contribution (DC) plans, the European Commission says.
The memo said DB plans will face challenges going forward as they look to shore up ever widening liabilities caused by investment losses. "Impacts on individuals may come from formalised or ad hoc adjustments to indexation or contributions…or even accruals to control costs."
The EC expects DC plans to "play a bigger role in overall pension income." The Commission says it will encourage the use of lifestyle or lifecycle funds, which take the largest amount of risk when the employee is young shifting into lower risk assets as the employee readies for retirement.
Overall the commission was generally bullish on the state of European pension funds.
The EC said: "Despite the severity of recent market turbulence, European pensions have not experienced problems to the same degree as other types of financial institutions nor those of pension systems in some other countries outside the EU. So clearly the system is relatively robust, at least over the short term for those retiring today."
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