In the past month we have had the European Fund and Asset Management Association (EFAMA) announcing its blueprint for cross-border European pension products, closely followed by the Association of the Luxembourg Fund Industry’s (ALFI) call for the industry to broaden its appeal to savers in Europe.
Now for someone who bangs on about the importance of long term savings for a living, both ideas caught my eye for different reasons. EFAMA’s pension blueprint lays down a set of standards for a personal pension product that can be sold Europe-wide. Called the ‘Officially Certified European Retirement Plan’ (OCERP) EFAMA suggests that as well as a standardised product solution, OCERPs offers the prospect of transferring pensions between providers, as well as countries within Europe.
For advisers with clients working overseas who have built up several pension pots, some of which are frozen, the idea sounds like the perfect answer to the current fragmentation that exists in the European pensions market and exactly what many of us have been waiting for. Or is it?
The key problem with pensions has always been one of transferability. And while OCERPs may offer an improvement on current pension products available, it still doesn’t get us over the legal, regulatory and tax hurdles put up by each EU member state.
To give EFAMA credit, it does point this out as beyond its scope. But a solution that needs the buy-in of 28 countries (and growing) may mean we have a longer wait for a much needed European pensions solution.
Broadening the appeal of mutual funds in Europe
Which brings me to the ALFI report that argues the case for broadening the appeal of mutual funds in Europe. Apparently, while the industry focuses on the wealthiest 10% of investors, those lower down the wealth scale have €4trn sitting on deposit.
To put this into context this is greater than the total value of household wealth in South America, 40 times the size of the fund industry in India and four times the size of the fund industry in Brazil. Now that’s a lot of cash languishing in deposit accounts that have been paying next-to-nothing.
While the report says the financial crisis has had a lot to do with smaller investors becoming more risk averse, it comes up with some strong cases for investing.
Not only do the figures point to better performance by having a greater weighting in long term savings despite market turmoil and poor equity performance, but there are also added benefits of engaging with the potential wealthy of tomorrow and fostering the overall growth of financial services.
These are points that resonate with all advisers in the face of RDR and the re-structuring of our business and financial services generally. Basically, how can the industry as a whole reach a sector of the market that is currently difficult to reach and costly to maintain?
One to ponder next time you are waiting for a bus…