EUROPE - As continental Europe edges closer to adopting funded pension schemes, unit-linked products are capturing increasing attention, according to a report from Cerulli Associates.
“Generally, it’s recognised in Europe that the state cannot provide for pensions in the way that it has in the past, and there’s going to be the need for greater self reliance on the part of individuals,” said Stephen Irving, senior analyst and consultant, Cerulli Associates.
The combination of an investment fund with an insurance policy is a logical step in increasing confidence in complementary pensions schemes in Europe, where insurance products have long been popular investment vehicles.
“In many countries, particularly in Germany, people are very comfortable with insurance products, and going from a strictly insurance product to one that is an insurance product that invests in underlying funds, is not such a great leap of the imagination for them,” said Irving.
Cerulli Associates argues that Europe’s pension reform will take place in the third pillar, not the second, with individual insurance products likely to form an increasing component of pooled pension assets.
Unit-linked products are attractive for insurance providers in that the risk is off loaded to the individual who generally determines how the product will be invested.
Irving added: “In general terms they are stickier products. A corporate pension fund could say that I am going to terminate manager A after three years, whereas with unit linked, there’s not one individual that will necessarily have control over the assets in the same way.
“So once you secure the unit-linked contract, unless something disastrous happens, then you are going to keep those assets.”
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