Pension Savings: The Real Return 2015 Edition

390 Pages Posted: 24 Dec 2015

See all articles by Jean Berthon

Jean Berthon

Better Finance

Lubomir Christoff

ICFC; Institute of Certified Financial Consultants

Didier Davydoff

European Savings Institute (OEE)

Flavia Fulea

Better Finance

Gabaut Laetitia

European Savings Institute (OEE)

Josefine Gunnarsdottir

Aktiespararna (Swedish Shareholders' Association)

Arnaud Houdmont

Better Finance

Michael Klages

INSEAD OEE Data Services (IODS)

Nicolas Kortesluoma

Aktiespararna (Swedish Shareholders' Association)

Edin Mujagić

Tilburg University

Guillaume Prache

Independent

Mariacristina Rossi

University of Turin, Esomas

Joanna Rutecka

Warsaw School of Economics (SGH)

Ján Šebo

Faculty of Economics at Matej Bel University

Filipa Silva

Better Finance

Klaus Struwe

Klaus Struwe Development

Tomáš Virdzek

Matej Bel University

Juan Viver

Better Finance

Date Written: September 30, 2015

Abstract

According to the 2014 European Commission’s consumer scoreboard, the market for investment and pension products continues to be the worst performing market in Europe. As the new research report by Better Finance on the performance of private pensions in Europe shows, this lack of consumer trust is a direct consequence of the persistent inability of many financial intermediaries to deliver decent long term returns.

The 2015 Edition of “Pension Savings: The Real Return” now covers 15 EU countries, representing 85% of the EU population and encompassing up to 15 years of returns on pension savings (2000 to 2014). It is once again the only publication to provide such comprehensive data on the real net returns on pension savings in the EU and, in doing so, has become the main source of information on the actual performance of long-term “retail” investment products for European financial supervisors and consumers alike.

Despite a persistent lack of available information on aggregate fees and performance, the report clearly demonstrates that blaming poor returns on the performance of capital markets holds no water. As it stands, pension funds simply all too often significantly underperform capital markets.

By combining the exceptional performance of bond markets and the lower but positive performance of equity markets over the last fifteen years, a direct investment of 50% in European equities and 50% in Euro bonds would have generated a 35% positive return in real terms (net of inflation).

Regrettably though, net real returns on long term savings products have generally been far lower, and all too often negative, thereby eradicating the real value of pension savings. Unit-linked insurance products in particular delivered dismal returns.

Those returns are influenced by a series of variables including asset allocation, capital markets' performance and the actual skills of asset managers. However, the reasons for the disappointingly low returns of pension saving products clearly lie elsewhere. In fact, over the years it has become increasingly clear that the actual main culprit is the excessive level of fees and commissions charged overall. That and the heavy, and increasing, tax burden on savers.

Sadly the future does not look any brighter as the decades long bull market in bonds is likely to come to an end with interest rates now at historically low levels and with pension funds having increased their allocation to bonds during the last 15 years.

Better Finance identified ten key policy measures that would go a long way towards improving this dire situation for European households, as well as improving growth and foster job creation in Europe. These measures were presented to the European Commission within the framework of the consultation on the “Capital Markets Union” (CMU) initiative and warrant repeating. The CMU Action Plan that was made public today is a step in the right direction but more effort needs to be put into improving long-term net returns of intermediated (packaged) investment products as a matter of urgency.

In that regard - whereas Better Finance applauds the EU initiative for a much-needed, simple and cost effective Pan-European Personal Pension (PEPP) that would, at least, protect the long-term purchasing power of savings - it warns EU Member States not to discriminate and kill the project with unfavourable tax treatment.

Suggested Citation

Berthon, Jean and Christoff, Lubomir and Davydoff, Didier and Fulea, Flavia and Laetitia, Gabaut and Gunnarsdottir, Josefine and Houdmont, Arnaud and Klages, Michael and Kortesluoma, Nicolas and Mujagić, Edin and Prache, Guillaume and Rossi, Mariacristina and Rutecka, Joanna and Šebo, Ján and Silva, Filipa and Struwe, Klaus and Virdzek, Tomáš and Viver, Juan, Pension Savings: The Real Return 2015 Edition (September 30, 2015). Available at SSRN: https://ssrn.com/abstract=2695831 or http://dx.doi.org/10.2139/ssrn.2695831

Jean Berthon

Better Finance ( email )

Rue du Lombard 76
Brussels, 1000
Belgium

Lubomir Christoff

ICFC ( email )

3422 Old Capitol Trail
Suite 1063
Sofia, FL 1142
Bulgaria

HOME PAGE: http://idfk.org

Institute of Certified Financial Consultants ( email )

3422 Old Capitol Trail
Suite 1063
Sofia, FL 1142
Bulgaria

HOME PAGE: http://idfk.org

Didier Davydoff

European Savings Institute (OEE) ( email )

48 rue de Provence
Paris, 75009
France

Flavia Fulea

Better Finance ( email )

Rue du Lombard 76
Brussels, 1000
Belgium

Gabaut Laetitia

European Savings Institute (OEE) ( email )

48 rue de Provence
Paris, 75009
France

Josefine Gunnarsdottir

Aktiespararna (Swedish Shareholders' Association) ( email )

Sveavägen 151
Stockholm
Sweden

Arnaud Houdmont

Better Finance ( email )

Rue du Lombard 76
Brussels, 1000
Belgium

Michael Klages

INSEAD OEE Data Services (IODS) ( email )

48 rue de Provence
Paris, 75009
France

Nicolas Kortesluoma

Aktiespararna (Swedish Shareholders' Association) ( email )

Sveavägen 151
Stockholm
Sweden

Edin Mujagić

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Guillaume Prache (Contact Author)

Independent ( email )

No Address Available

Mariacristina Rossi

University of Turin, Esomas ( email )

Corso Unione Sovietica
Torino, Torino 10100
Italy

Joanna Rutecka

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Ján Šebo

Faculty of Economics at Matej Bel University ( email )

Tajovského 10
Banská Bystrica, 974 01
Slovakia

Filipa Silva

Better Finance ( email )

Rue du Lombard 76
Brussels, 1000
Belgium

Klaus Struwe

Klaus Struwe Development ( email )

Hans Bruuns Vej 14, st.
Charlottenlund, 2920
Denmark
+4520278639 (Phone)

Tomáš Virdzek

Matej Bel University ( email )

Tajovskeho 10
SK 974 01 Banska Bystrica, 97401
United States

Juan Viver

Better Finance ( email )

Rue du Lombard 76
Brussels, 1000
Belgium

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