An Aon news release said the different pension approaches are hurting some European companies and creating an uneven playing field across the continent, affecting companies’ ability to compete.
The differing systems included fully-funded defined benefit (DB) models in Ireland, the Netherlands and the U.K., to the fully-insured and predominantly defined contribution (DC) Scandinavian systems.
According to the news release, the research found that:
- Companies in the UK, Netherlands and Ireland face the biggest challenges, suffering the biggest competitive disadvantage due to pension liabilities from sponsoring DB pension schemes.
- Companies least affected by the financial turmoil are those whose pension liabilities are based in countries with the most generous state-provided pension benefits, notably Austria, France and Spain.
- Fully-insured and predominantly DC arrangements in Scandinavian countries have performed relatively well given market conditions but will face challenges over the medium term as conservative investment policies struggle to deliver meaningful retirement benefits.
- The Book reserve pension model in Germany and Austria, once regarded as unsustainable, is demonstrating its mettle and is now a competitive advantage in capital-constrained conditions.
- Liability calculation methods vary between countries, inhibiting transparency and introducing disparate levels of volatility in pension fund liabilities.
Aon said that in terms of competitive disadvantages arising from pension funds affected by the economic turmoil, the Netherlands is the worse hit country in Europe, followed closely by the U.K. and Ireland. A significant number of companies in these countries sponsor fully-funded DB pension schemes and are under pressure to replenish scheme deficits from earnings or other sources.
In the UK, home to the biggest pension funds in Europe, the basic state pension offers €5,100 to retirees, compared to a maximum state pension of €38,000 in Austria. In France, pensions assets hardly exist because of highly attractive state earnings-related payments.
Aon Consulting conducted a survey of its business leaders across Europe, from February to April 2009. The interviewees were chief executives and senior consultants working in eleven countries with total private pension assets of around €4 trillion.
The study report is available here .
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