Defined contribution (DC) schemes should be the model for pension funding in Europe, according to Invesco Pensions.
Following an examination of pension arrangements within European states, David Butcher, CEO of Invesco Pensions, found that decreasing birth rates, earlier retirement, longer life expectancies and fewer workers per retiree all posed a threat to social security schemes - even to the point of bankrupting the state.
Invesco marketing director Rick White said the bankruptcy scare will prompt European pensions reform, forcing state pension schemes to move from an unfunded to a funded position.
He explained that in reforming pension arrangements, European states need to address certain cultural issues relating to pensions. He questioned whether, in the widespread move of employers setting up DC schemes instead of defined benefit plans, employers and employees will be forced or encouraged to contribute in order to further take the funding burden off the state.
“It remains to be seen,” said White.
Butcher said Sweden, France, Germany and Italy are increasingly moving towards DC, but added: “Each country’s approach to retirement savings will be unique. No one European country will look exactly like the US 401(k) model or the UK’s stakeholder model, but there will be similar themes for DC in Europe as in the US and UK.”
Butcher concluded that individuals involved in DC schemes should be given 24 hour access to investment information, daily pricing and a comprehensive choice of investment options.
By Janet Du Chenne
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