Europeans need to rethink how they save and plan for retirement. A culture of guaranteed returns has become embedded, but this does not match the realities of investment markets offering low returns, coupled with ageing populations. However the success of the Ucits investment fund regulation points to a sustainable solution.
This was the consensus view of the “Looking back at three decades of the Ucits global success story” panel at Association of the Luxembourg Fund Industry’s Global Distribution Conference on Tuesday.
Strong and flexible
“The creation of a deeply harmonised product gave confidences to investors and regulations that they could trade across border,” said David Wright, the chairman of Eurofi. A strong regulatory framework featuring a great deal of flexibility has facilitated this, he argued. He hoped that this model would be the template for future developments.
In particular there are hopes that the proposed pan-European pension product (PEPP) can encourage individuals to take greater responsibility for their retirement savings, and give a boost to European financial markets. Ucits funds would be the motor of this initiative.
Adapting cultures
Burkhard Ober, head of public policy at Allianz SE agreed in principle, but has concerns over the diversity of different market cultures. “Some national cultures tend to be more concerned about preventing losses, seeking that their pension and life insurance policies be guaranteed,” he said. He believes that for the PEPP to work there may need to be country compartments. But administering this could be prohibitively expensive for individual companies. He believes industry-wide, technology driven platforms will be needed.
As well as accommodating cultural differences, the fund industry also needs to work to change attitudes. “It’s clear that we need to educate investors about how financial markets operate, but we also need to work with politicians and policy makers,” said Sheila Nicoll, head of public policy at Schroders Investment Management. This is all the more relevant as the next generation of pensions will not have the guaranteed returns that were almost universally provided in the second half of the 20th century.
She added that it was important that funds offer value to investors, with every hundredth of a percentage point of fees needing to be reduced where possible. Each basis point might not sound like much, but when considered over 30 years and multiplied by the trillions of assets under management globally this adds up to substantial amounts lost to investors.
Global inspiration
Overall there was agreement that the example of Ucits should be followed. “Europe can become the global champion of multilateralism,” said Wright. “The EU is building bilateral deals around the world, and I would encourage them to put Ucits and the PEPP as part of that process.”