The pension savings equation from BlackRock perspective
A profound change is occuring in the area of retirement savings in Europe. In Luxembourg, Dominic Byrne, the lead investment strategist for retirement solutions in Europe at BlackRock, enumerated a few facts corroborating the current revamping in European pensions. For the first year, defined contribution pension plans have overtaken defined benefit plans by asset size globally. More than ten million savers in the United Kingdom have chosen DC over DB pensions, Europe is reflecting on a standardised pension product as third pillar and in Germany, new rules, appealing for corporates and workers, are in place in the DC market since 2018 following the large reform of occupational pensions.
Byrne said he foresees an increase in assets in the European DC market place to €3.5trn by 2023 from €2trn currently. “We see a first shift from state pension to individual savings. The second shift from states to corporates sees individuals becoming responsible for their retirement savings”, Byrne stressed.
According to BlackRock’s retirement investment strategist, the amount of savings remains a critical component in the pension savings equation and its outcome. “Not only do we need retirement products that should encourage savings but also grow savings through time”, Byrne said. He pointed out well regulated structure like Ucits and well run funds would be another component of the equation.
One solution in Byrne's view, albeit not a one-fits-all solution, remains target-date funds that are much used in the "mature" US DC market. “Target-date funds may not solve all problems but they have some good characteristics", he said, highlighting tactical, strategic and lifetime allocation. Appropriate risk needs to be taken at every point through lifetime and Byrne suggested a holistic lifetime savings and investment approach can counter human foibles, like selling risk after market drawdowns and adding risk when prices at at a peak.
About the pan-European pension product (PEPP), BlackRock’s Europe retirement expert said asset managers will definitely have a role to play, with some solutions including guaranteed income and various risk profiles. Byrne said the companies will need to achieve some ground work like getting income data across European markets in order for their products to fit the different types of savers across Europe.