SINGAPORE, May 3 (Bernama) -- A new EDHEC-Risk Institute study entitled
“Shifting Towards Hybrid Pension Systems: A European Perspective,” made possible
with the support of AXA Investment Managers, highlights the need to reform
retirement systems and pension funds.
It also said there is a need to adopt professional management structures and
to considerably improve the product offering of defined-contribution (DC) funds.
Among the key prescriptions of the study stated that DC plans, primarily in
the US and the UK, employees bear all the financial risk and no guarantees are
offered by the sponsor or by prudential regulation.
However, the lack of guarantees and transparency could lead to a problem of
trust – it is thus important that some guarantees are offered in DC funds and
that their costs are clearly explained in order to avoid creating a biased
These changes would help to avoid future disappointment amongst employees,
who would reduce their participation in such retirement systems and potentially
question their perception of their overall remuneration.
In the UK, the new Pensions Act requires auto-enrolment of employees in
pension plans, and introduces the government’s National Employment Savings Trust
(NEST) – a professionally managed structure with controlled costs which will
serve as a default option.
This should raise awareness in the industry on pension fund management.
The study also noted that tThe most significant developments to institutional
pension systems in the short-term will likely be seen in DC funds.
It is important to create DC funds that address the need for retirement
savings and can then serve as default investment options in existing plans.
In the UK, companies are now required to provide their employees with a
retirement savings plan and many will need to have ready-made pension plans to
The study said: "We should expect to see some consolidation of DB and hybrid
funds in the market as economies of scale are possible, particularly where the
industry is highly fragmented.
Commenting on the study, Noël Amenc, Director of EDHEC-Risk Institute, said,
“It is clear that complete reliance on sponsor guarantees for traditional DB
funds makes little sense in view of the prevailing economic context and
demographic trends in Europe.
"With more hybrid pension schemes in Europe, and a shift towards DC funds in
the United Kingdom and the United States, there is a requirement for improved
governance, investment options and communication to employees.”
Erwan Boscher, Head of Pension Solution Management at AXA Investment Managers
said, “At a time when governments, regulators and plan sponsors are preoccupied
with finding the right balance between risks and uncertainties for employers and
employees, the findings of the EDHEC survey are extremely timely.
Although the recent years have seen an increased level of sophistication
achieved by the pensions industry in asset-liability and risk management, this
survey highlights the specific challenges that face hybrid and collective DC
schemes as they evolve to meet the needs of employers and employees alike.
"We are confident that the EDHEC research will contribute to this important
debate on pension provision and pave the way for more flexible solutions with an
optimal level of risk sharing," he added.
Since 2001, EDHEC has been pursuing an ambitious policy in terms of
international research. This policy, known as “Research for Business”, aims to
make EDHEC an academic institution of reference for the industry in a small
number of areas in which the school has reached critical mass in terms of
expertise and research results.
EDHEC-Risk Institute is located at campuses in Singapore, London (United
Kingdom), and Nice, France. -- BERNAMA
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