Abstract
Overview
Introduction
This report examines the savings and investment solutions used by High Net
Worth Individuals in Europe to accumulate funds for retirement. It focuses on
the wealth markets in the UK, Germany, France, Italy and Spain and assesses
the contribution of occupational and private pensions, as well as alternative
products, to the retirement portfolio.
Scope
- The report sizes the wealth markets in five major European economies and
profiles key investor segments in each country.
- It examines second and third pillar pension solutions for high net worth
individuals, and reviews current regulatory reforms and market developments.
- It identifies the main alternative retirement solutions being recommended,
based on primary research among wealth managers and financial advisors.
Report Highlights
The degree of reliance on occupational or second pillar pensions to provide
retirement income for high net worth individuals varies across countries. The
relative adequacy of company pension plans depends, in large measure, on
contribution limits, which have a direct impact on future retirement benefits.
Despite considerable development in the legislative framework for pensions in
Europe over the last two decades, there is scope for the development of a
market for alternative non-pension retirement solutions. With the exception of
the UK, and to a lesser extent, France, private schemes provide few additional
advantages over occupational pensions.
High net worth individuals rely on a wide range of alternative retirement
savings vehicles, including SRIs, REITs, mutual funds, property and equity
investments.
Reasons to Purchase
- Understand the size and scope of the wealth markets in key European states
and the increasing demand for supplementary retirement provision.
- Analyse developments in the markets for occupational pension products for
high income earners, and for private pension solutions.
- Identify the alternative savings solutions required by high net worth
clients to meet their retirement goals.
Table of Contents
- EXECUTIVE SUMMARY
- Market context
- The European Wealth Market
- Occupational Pensions
- Private Pensions
- Market Development
- Alternative Retirement Saving Solutions
- INTRODUCTION
- What is this report about?
- Who is the target reader?
- How to use this report
- CHAPTER 1 MARKET CONTEXT
- Europe sees increasing demand for supplementary retirement provision
- High net worth clients require specialized products and advice
- CHAPTER 2 THE EUROPEAN WEALTH MARKET
- Introduction
- Key findings
- The High Net Worth market in Europe continues to grow
- The structure of the market influences the choice of retirement
solutions
- CHAPTER 3 OCCUPATIONAL PENSIONS
- Introduction
- Key findings
- Occupational Pensions offer a partial solution to the challenge of
building an adequate retirement fund
- The UK has, by far, the most highly developed market for occupational
pensions
- Specialist occupational pensions have been established for high income
earners
- A-day reforms have eliminated the necessity to purchase an annuity at
retirement
- EPPs and Group AVCs dominate the market for occupational pensions for
high income earners
- HNW individuals are restricted by basic company schemes in Germany
- Five options for occupational pension plans exist in Germany
- German occupational pension schemes allow limited scope for choice
- Article 39 contracts, Article 83 contracts and PERCO schemes are
available for French executives
- Article 39 and Article 83 contracts represent the traditional
retirement plans for French executives
- The 2003 reforms provided new alternatives
- Article 39 contracts continue to be the preferred alternative
- There is limited usage of occupational pensions in Italy
- Company schemes take the form of closed and open pension funds
- Spanish occupational pension plans are largely unsuitable for high
income earners
- Occupational pension options in Spain include company and associate
schemes
- Limits on contributions to Spanish pensions are restrictive
- CHAPTER 4 PRIVATE PENSIONS
- Introduction
- Key findings
- Private Pension Plans - Closer To High Net Worth Retirement Targets
- Greater flexibility is required for the development of the private
pensions market
- Private pension options for wealthy UK clients include SIPPs, Section 32
Transfers and FSAVCs.
- Self Invested Personal Pensions continue to be the most popular
product for HNW individuals in the UK
- The nature and intensity of competition in the UK HNW retirement
market are changing
- A-day reforms encourage new market entrants and new products
- New regulations will be introduced to protect SIPP investors
- Riester pensions supplement state and occupational provisions in Germany
- The German government incentivises the use of Riester contracts
- The uptake of Riester pensions has been gradual
- PERP plans are set to become increasingly popular in France
- Madelin contracts are the traditional private pensions vehicle
- Legislative reform in 2003 introduced the PERP
- PERP plans are expected to become increasingly popular over the next
few years
- Italy' s private pensions market is limited in size and scope
- Open pension funds and piani individuali pensionistici (PIPs) provide
private pensions in Italy
- PIPs are the preferred option for private pensions
- There is scope for development of the Italian private pensions market
- Private pensions in Spain are a mix of insurance products and pension
funds
- Private pensions in Spain are available as individual pension plans or
individual life insurance policies
- Private pensions are widely used, but contributions remain low
- CHAPTER 5 MARKET DEVELOPMENT
- Key findings
- The UK Government is keen to encourage the use of annuities
- The Treasury objects to the use of ASPs to avoid inheritance tax
- ASPs will become a less attractive option
- A call for increasing flexibility, efficiency and transparency in Germany
- Germany' s BVI sees a need for more flexible occupational pensions
- Wealthy Germans require more sophisticated pension alternatives
- Enactment of the EU Occupational Pensions Directive will create new
market opportunities in France and across Europe
- EU legislation opens up the market for occupational pensions
- Providers will see new product and market development opportunities,
pending enactment across Europe; but legal and regulatory complexity will
persist
- Expansion of the occupational and private pensions markets is
anticipated in Italy
- Upcoming legislative changes will create opportunities for more funds
to be allocated to pension schemes and for innovative products to be
developed in Italy
- Innovative product development is anticipated
- The revised tax regime in Spain will further reduce the appeal of
pension plans to the wealthy
- Lower overall contribution limits will restrict investment by HNW
individuals
- The Spanish government favors annuitization
- A new long-term savings plan will compete with life insurance and
pension funds
- CHAPTER 6 ALTERNATIVE RETIREMENT SAVINGS SOLUTIONS
- Introduction
- Key findings
- UK High Net Worth Investors add SRIs, Venture Capital Trusts, property
and hedge funds to their portfolios
- Tax treatment of funds in excess of the Lifetime Allowance heightens
the need for alternative investments
- SRI funds and REITs provide additional long term investment options
- The UK High Net Worth segment favours investment in hedge funds to
reduce volatility; VCTs are used for tax optimization
- There is tempered demand for insurance-based products in Germany
- German wealth managers recommend managed solutions, including
investment in mutual funds and equity
- Risk aversion in Germany will sustain demand for with-profits funds
and guaranteed products
- Legislation creates a more complex operating environment, but
ultimately benefits investors
- There will be consolidation in the market and providers will need to
reconsider their operating strategies
- Life insurance, property and equity investments supplement pension
provisions in France
- Life insurance is a popular option for retirement savings
- Commercial real estate offers a viable option for retirement planning
- PEAs provide a platform for investment in equity
- Italian High Net Worth clients rely on a wide range of instruments
- Italian aversion to risk limits investors' use of equity investments
- Property and Variable Annuities may offer more predictable alternatives
- Wealthy Spaniards select among mutual funds, equity investment, Sicavs
and property
- Despite a traditional aversion to its inherent risks, wealthy
Spaniards are willing to invest in the stock market
- Sicavs are appropriate for some HNW investors
- Demand for property investment remains strong
- Spanish HNW individuals pursue innovative solutions
- Amendments to the tax code will have implications for long term
investments
- APPENDIX
- Definitions
- Endowment Policy
- High net worth (HNW)
- New business
- Pension product definitions
- Additional Voluntary Contributions (AVCs)
- Controlling directors
- Defined contribution pensions scheme
- Defined benefits pensions scheme
- Executive Pension Plans (EPPs)
- Free Standing Additional Voluntary Contributions (FSAVCs)
- Funded Unapproved Retirement Benefit Schemes (FURBs)
- Personal Pensions
- Section 32 Transfers
- SIPPs (Self Invested Personal Pensions)
- Small Self Administered Schemes (SSAS)
- Unfunded Unapproved Retirement Benefit Schemes (UURBs)
- Further reading
- Life and Pensions SPP
- Related Global Wealth Service SPP Reports
- Market Reports
- Strategic Insight Reports
- SPP writing team
- List of Tables
- Table 1: Gross Replacement Rates of 1st Pillar Pensions
- Table 2: High Net Worth Individuals 2005
- Table 3: UK Occupational Pension Plans - Total New Business H1 2006
- Table 4: France: Occupational Pension Plans - Annual Contributions 2005
- Table 5: Italy: Occupational Pension Plans H1 2005 & 2006
- Table 6: Spain: Occupational Pension Contributions Jan - Sep 2006
- Table 7: UK: Private Pension Plans - Total New Business H1 2006
- Table 8: New Riester Contracts 2000-2005
- Table 9: France: Personal Pension Plans Annual Contributions 2005
- Table 10: Italy: Personal Pension Plans - Contributions Q1 2006
- Table 11: Spain: Personal Pension Plans & Retirement Insurance
Contracts Jan - Sep 2006
- List of Figures
- Figure 1: High Net Worth Individuals 2005
- Figure 2: High Net Worth Individuals 2005 - Total Net Worth
- Figure 3: UK: Occupational Pension Plans - Total New Business H1 2006
- Figure 4: France: Occupational Pension Plans - Annual Contributions
2005
- Figure 5: Italy: Occupational Pension Plans HI 2005 & 2006
- Figure 6: Spain: Occupational Pension Contributions Jan - Sep 2006
- Figure 7: UK: Private Pension Plans - Total New Business H1 2006
- Figure 8: Germany: New Riester Contracts 2000-2005
- Figure 9: France: Personal Pension Plans Annual Contributions 2005
- Figure 10: Italy: Personal Pension Plans - Contributions Q1 2006
- Figure 11: Spain: Personal Pension Plans & Retirement Insurance
Contracts Jan - Sep 2006
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