Tackling Europe’s retirement savings shortfall
Todd Solash, Deputy CEO and President, Athora Group argues for strategic innovation, private market participation and regulatory evolution in a bid to close the pensions gap
This article was first published by InsuranceERM
The pensions and retirement savings gap is a growing concern across Europe. By 2050, 130 million people in the European Union (30% of the total population) are projected to be 65 or over¹ as a result of rising life expectancy and falling birth rates. This places intense strain on state and occupational pension systems and has already led to the majority of people having low financial confidence in their retirement². Over the next 25 years, individuals will need significantly more private retirement savings to sustain their lifestyles.
Individual and workplace life and pensions policies are important products which can plug this gap and offer peace of mind through financial protection and security. In particular, there is a strong interest from savers and retirees for guaranteed products which offer attractive returns.
Insufficient supply
Unfortunately, the search for financial security is coming at the same time as a shift in the European savings and retirement landscape which is exacerbating the problem; many insurance companies have disposed of or deprioritised these guaranteed products.
One of the core reasons for this shift is that guaranteed products are capital-intensive under existing insurance regulatory frameworks like Solvency II. To back long-term guarantees, insurers must hold significant capital and reserves – increasing the cost of offering such products and making them less profitable. In addition, fluctuating interest rates and compressed asset yields are making it difficult to consistently fulfil previous policy guarantees and sell attractive new products.
For traditional insurance companies, divesting from legacy life and pension portfolios that no longer align with their business priorities means they can return capital to shareholders and reduce the need for sophisticated, resource-heavy capital and risk management infrastructure. As a result, they can minimise financial and operational risks and free up capital for new ventures. In fact, we’ve seen a 30-40% reduction in products offering financial guarantees to savers and retirees in some European markets from 2010 to 2020³. Against the backdrop of increasingly volatile markets, this evolution has left many savers vulnerable.
What’s the solution?
Consolidation specialists and new entrants are stepping in to fill the void by acquiring closed pension schemes and life insurance portfolios, servicing customer needs, providing attractive returns and in some cases writing new products.
These savings and retirement services companies are able to benefit from economies of scale and operate with the streamlined, future-ready IT systems needed to support these products. Unlike traditional insurers, their dedicated investment management capabilities, advanced asset/liability strategies and access to significant capital enable them to run these businesses more effectively. Moreover, their capacity for innovation allow them to respond to market needs with greater agility – an essential skill in a challenging market environment.
¹Ageing Europe - statistics on population developments - Statistics Explained - Eurostat
²Op-Ed: How EU policymakers can help plug Europe’s pension gaps - EIOPA
³ Sources included German Insurance Association Statistical Yearbook, French Insurance Federation Annual Reports, The Netherlands Bank “Vision for the Future of the Dutch Insurance Sector,” LIMRA