Insight into the role of insurers in the provision of pensions
in the European Union has been provided by a first-of-its kind
study produced by the Brussels-based Comité Européen des Assurances
(CEA), an industry body representing 5,000 European insurers and
reinsurers.
The survey, entitled “The role of Insurance in the provision of
pension revenue”, fills a gap in that, until now, the size of the
pensions market and insurers’ share of pensions contributions in
Europe has been relatively unknown.
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According to the CEA, total annual premium income for the provision
of pension revenue coming from all sources is more than €1.22
trillion ($1.8 trillion), of which the largest part, 69 percent,
comes from first-pillar state pensions, mainly organised by public
authorities and based on the pay-as-you-go principle.
Second-pillar schemes – funded schemes in which the state usually
collects contributions and channels them to insurers and other
private service providers – represent €225 billion (18 percent) of
the total. Third-pillar schemes – funded schemes provided by
insurers and other private entities – represent €152 billion (13
percent) of the total. Insurers’ share of second- and third-pillar
schemes is €244 billion (65 percent).
In its study, the CEA uses its figures to support the insurance
industry’s argument in favour of increasing second- and
third-pillar funded schemes, to help to solve Europe’s ageing
population problem.
The study reveals that the amount of benefits for the population
above 65 shows an average retirement (replacement) income estimated
at €15,000. This is 70 percent of the average gross working income
wage in the zone of the study, which includes much of the EU,
Switzerland and Turkey.
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By GlobalDataIn order to allow countries with the lowest retirement income
replacement ratio to offer adequate pension provision, the
insurance industry is pressing for increased adoption of
employment-related and voluntary-contribution products. This,
argued the CEA , would reduce strain on public finance, diversify
the sources of income for retirees and benefit the EU’s
economy.
Ageing populations
The CEA survey placed heavy emphasis on figures illustrating the
problem of an ageing population. It noted that the dependency ratio
is expected to decrease from four people of working age per elderly
person in 2004 to only two contributors per retiree in 2050.
The results of the analysis indicate that a peak in pension
spending for the EU will be reached in 2044, though this does not
hold true for all countries. For example, in Austria, where reforms
have been introduced, and in Finland, where funded schemes
predominate, peaks will be in about 2030. Most other countries will
hit peaks between 2040 and 2050.
The CEA explained this means that there is still time, but not
much, for public authorities to react in order to soften the burden
on future generations. The CEA stressed that an increase in the
share of funded schemes for pensions is essential. This is “a task
precisely suited to insurers”, said the CEA, noting the solid base
that the insurance industry enjoys with a view to providing
suitable retirement savings products. It cited that in 2005
insurers were successfully managing funds worth €6.3 trillion, a
total that includes life and non-life sectors.
Not afraid to push hard its argument in favour of funded schemes,
the CEA’s analysis lists their advantages. Funded schemes provide
“stability and certainty for those who save in them”, and they
“allow [reliance] on other countries through investment… [that is,
with] a spread across borders… [and with investment] made in
younger populations across the world”, it stated. The CEA added:
“When the interest rate is higher than population growth rate, it
is always more profitable for the society to rely on a funded
scheme.”
Jeremy Woolfe
