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May 1, 2008updated 13 Apr 2017 9:00am

CEA calls for a bigger pensions role for insurers

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 Comit Europen 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. 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.

By Jeremy Woolfe

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.

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.

In 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

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