Productive Investment: What Is at Stake and Current Initiatives at National and EU Levels
A public authority representative set the scene, outlining that two years ago the Commission estimated that there was an investment gap in Europe of around €300 billion, which led to the creation of the EU investment plan. Investment is still high on the agenda. A number of countries are discussing their possible investment plans domestically. Some are creating national promotional banks. There are also a number of regulatory reforms aimed at facilitating investment with changes in Solvency II and possible changes under discussion to the CRD.
1. Addressing Current Obstacles to Investment
1.1 Making Solvency II More Flexible
An industry representative explained that, thanks to the first flexibilisation of Solvency II in the field of infrastructure investment, the insurers have found the possibility of investing more. There is now hope that, through funds or more projects, there will be more opportunities to invest in that.
However, there are still regulatory obstacles. Insurers have no problem with the risk-based approach of Solvency II, but some of the calibrations must be revised.
A regulatory body representative stated that a lot has already been done. The representative does not believe that Solvency II impedes long term investment. The regulatory body itself has recently worked on a number of adaptations. They have created a separate investment class for infrastructure that qualifies for certain kinds of infrastructure projects. The qualifying infrastructure investments need to satisfy conditions relating to the predictability of the cash flows, the robustness of the contractual framework, and their ability to withstand relevant stress scenarios. In terms of risk management, insurers should in particular conduct adequate due diligence prior to the investment; establish written procedures to monitor the performance of their exposures and regularly perform stress tests on the cash flows and collateral values supporting the infrastructure project.
As rightly acknowledged by the World Bank ‘European regulators’ have been the first to formally acknowledge the particular risk properties of infrastructure finance. The speaker’s institution will continue to work and will provide further advice to the Commission with the aim to remove unjustified constraints to financing, This includes: i) develop criteria for good quality, lower risk unrated bonds and loans, ii) develop criteria for good quality, lower risk unlisted equity, and to iii) provide information on the investments that qualify as 'strategic participations' and therefore benefit from reduced risk charges.
Any changes to the calibration of the capital requirements, however, can only be recommended on the basis of concrete evidence of lower risk. Therefore, the industry still needs to provide concrete evidence that the risk is not reflected in the new possible capital charges. Solvency II has the objective of protecting policy holders. The industry needs to find good evidence and we can then further adapt the regulation. In addition, a holistic perspective of the SCR calibration must be maintained. The revised framework should also take into account the prolonged low interest rate environment as it poses significant challenges for insurance undertakings, (especially for life companies that offer guaranteed products) and, ultimately, for the stability of the financial system as a whole.
Ultimately, major insurance undertakings are already allowed to adjust the capital charge when they adopt an internal model. The discussion there is about revising the capital charges simply for the rest of the insurance market, which follows the standard formula. To allow for capital relief, criteria needs to be put in place alongside conditions for the recalibration of the capital charge. In the end, the standard formula users need to make additional effort to better understand the risk behind certain kinds of investment.
The speaker’s institution has been asked to work on it and will produce their advice in the coming year. It is unclear what more can be done in terms of regulation, but more work needs to be done on the other side.
An industry representative responded that there is still a long way to go. He acknowledged that, on infrastructure, EIOPA and the regulators made efforts in September 2015 to rebalance the calibration of that kind of investment. However, he considers that in their institution, where there is more than €300 billion of assets under management, since it is ideal to be able to match very long liabilities with very long term assets, more could be invested in infrastructure and equity. Then he stressed that before Solvency II, they were used to invest something like 13% to 14% of our assets into equity - listed for the bulk of it and non-listed for a small part of it.
There is a question around whether it should be justified to think of potentially different co efficients in capital ratios for those kinds of products. At the international level, some are thinking in terms of activity based analysis. Perhaps for the future there is something to think of, but the industry is currently handicapped regarding their investment into equity, namely when matching very long term products, because of the capital ratios.
A pubic authority representative responded that their institution has looked at the equity figures and it seems that there was no ‘disaster’ at the European level in terms of the percentage of the investment in equity. The assumption that Solvency II penalises investment in equity is not confirmed. Monitoring will continue, but for now the first outcome of the regulatory framework seems to say that it is stable. It can be improved, but it is not a disaster.
Another public authority speaker noted that the environment has changed. Before Solvency II, insurers could invest in sovereign and get a good return; now, the return is usually loss.
A regulatory body representative responded that there are still incentives to invest in sovereigns, since Solvency II, as other regulatory frameworks, does not have a capital charge for sovereign. The portfolio of the undertaking still needs to be looked at and there is still needs to have fixed income. However, a further revision of Solvency II can be worked on when it comes to the fundamental review in 2020.
1.2. Possible additional obstacles: Insurance accounting standards, public institutions crowding out private investors and overdue development of ELTIF or PEPP
An industry representative noted that IFRS 9 could also have some negative effects since certain assets – in particular investment funds hold by insurance undertakings - would be mark to market after the rules come into force, creating undue volatility and preventing insurers from investing there.
The representative furthermore explained also that from time to time the best public spending intentions can have detrimental effects, such as crowding out private investments.
The other obstacle, is the slow development of a number of funds, especially the ELTIFs. The representative hopes that any initiative, including the pan European personal pension (PEPP) will foster insurers’ capacity to invest more.
A public authority representative outlined that the other issue is the CMU, regarding which it is often thought that many measures after the crisis, towards the equilibrium between stability and growth, are exaggerated.
The other side is on investor protection, too much of which only limits investors’ ability to invest in securities that are necessary on the other side to finance growth. The long term is ultimately about growth. The other side should be calibrated; there is otherwise the risk of no progress.
The prospectus are an example of too much customer protection. The last was 1,500 pages. They protect savers, lawyers and the competent authority; not issuers. They are ‘useless and expensive’. There are perhaps improvements with the new prospectus regulation, but it is not sufficient. Something completely different is needed.
A regulatory authority representative suggested that legislation may perhaps require revision. Consumer protection is not right, but it is not too much, and investors are never ‘too protected.’
1.3. The size of many investment needs are too small for banks and any institutional investors.
A public authority representative outlined that, particularly for corporates in the European Union (EU), there are paradoxes, such as the investor paradox. In Italy currently in the equity alternative investment market companies issue €50 million with only one third really floating on the market. There are also companies issuing only mini-bonds of only €10 million. €10 million is a bank loan.
Those amounts of money are too small for any institutional investors. The paradox is that those are the typical financial instruments that should go directly to the investor, since during the moments of very low interest rates, the amount of commissions and expenses required to issue them in the markets, is relatively too high.
Italy has recently launched individual savings plans where one can invest an amount each year with less taxation if it is a long term investment, and at least part of it is in SMEs, which could be interesting in eliminating some obstacles.
2. Developing the Financing of SMEs
2.1 The new financing conditions impact negatively SMEs
An industry representative returned to question posed on infrastructure, applying it to SMEs and questioned whether the issue is a lack of available financing or a lack of supply of new projects and ideas. Looking at the ECB deposit facility illustrates that lack of available financing is not the issue, but any SME association will dispute that there is a lack of new ideas and projects.
In reality, neither party is lying; rather, there is an important mismatch of appetite between the two. That happens because of the new market conditions, new monetary policy and the consolidation in the banking industry with M&As in the banking industry at the pan European or national level. The new market conditions force agents to behave differently to how they behaved pre crisis, which creates huge transitional frictions in the market, especially for SMEs.
2.2. Conditions for Relaunching Securitisation to Improve the provision of debt financing To SMEs
An industry speaker outlined that the strategies that can be used in response to the new market conditions differ for the debt and equity space. The debt space has promotional lenders, regulators and legislators. However, securitisation needs to be ‘re invented’, as, without it, there will never be a well functioning SME banking market since banks will be unable to offload that risk they have originated. The issue is currently stuck in Parliament, but it is an obstacle which needs to be removed.
In the interim period, promotional lenders can cushion the risk factor, providing banks with a neutral method of syndication of SME lending so that they are not entangled with the EU Commissions associated with the transaction. Indeed a bank would never syndicate a small SME because it is their client, and will never share it with a competitor but they can share with a promotional lender in a wholesale approach because they are neutral in that respect. Yet ultimately, the main issue is offloading risk once it has been originated, and securitisation.
2.3. Challenges faced to address the equity needs of SMEs
An industry representative explained that the private equity ecosystem has clearly been boosted in Europe. Various factors have an impact, but part of the reason behind why it is so small compared to the US is that the fundraising process takes too long for the fund managers to raise the money before the business opportunities disappear. The money needs to be available when a new company starts up, otherwise an American fund will take it, or the company will not move.
As promotional lenders, the fundraising timespan of fund managers can be sped up. However, that is only mitigation during the transitional interim period. In the long term, the solution can only come from those private companies entitled to hold the savings of citizens, and from having a friendlier environment so that they can engage in private equity investments.
2.4. SMEs need incentives to open their capital
A public authority representative moved the discussion to the final theme, around how to develop SME financing and facilitating market access or financing by banks, noting that the interesting situation of mini bonds in Italy had been mentioned.
Another public authority speaker outlined that the key topic is supply and demand. On the one hand, the industry needs SMEs and companies that open their capital and issues in order to be invested in. To do so, many prerequisites are required: incentives are needed, as is culture.
One example is that the Italian stock exchange created SMEs inductive programmes, called the ELITE. ELITE contacts small and medium companies and performs a three stage programme by which the companies are taught how to go to a bank to ask for a loan and also how to be more transparent by reporting. The company will not necessarily get onto the market, but it is interesting for it and useful in any case.
2.5. Market regulatory burdens should be alleviated
A representative from a public authority had the impression that there are market participants who want to stop regulation. To do so, they want to freeze regulators; however, if frozen, regulators cannot simplify and modify.
The Commission and others are working on SMEs and markets, and sometimes there are unintended consequences of trying to simplify regulations. In general, some legislative impediments should be lightened before moving towards optional, and opt in, requirements. A market cannot be created from scratch and incentives will be necessary.
There have also been mistakes from both regulation and market participants. The requirements need to be simplified. Prospectuses had been mentioned; those types of things are not needed, but more competition is needed amongst competent authorities.
SMEs are typically small and may be high tech. They need different requirements, such as a bigger major shareholding threshold. With takeovers there is perhaps a need to opt in on mandatory bids. The environment needs to be created and simplified; there is otherwise the risk of a safe SME growth market merely by virtue of its being empty.
An industry expert outlined that it is necessary to increase the share and contribution of the institutional investor, but the expert’s previous organisations had invested in equity 10% of their possibilities, but in listed equities. Those listed equities are not always compatible with the needs of the SMEs, who do not like to write overly precise prospectuses where their strategies are offered to competitors.
For the biggest part of those SMEs, an increase in the contribution of the institutional investor is conceivable provided there is a level playing field between the various institutions who buy on the stock exchange. That goes back to what was discussed previously: there is a need to consider that life insurance and pension funds, as far as the sums are blocked for a certain time, must be the same.
2.6. Education and taxation should contribute to enabling and incentivising retail investors to finance SMEs on a long-term perspective
2.6.1. Clarifying the Connection between Risk and Returns
A public authority representative outlined that in Italy the mini bond market is only open to institutional investors. There is a ‘paradox’, in that a retail investor in Italy can buy the share of an SMEs issuing equity, but cannot buy bonds.
Investors need to be educated in how to act in a long term manner. A risky bond can be bought, but the numbers show that the failure rate of SMEs is the same or lower than that of companies on the main market. The normal thing would be to incentivise long term behaviour, and the fiscal system could teach that markets are long-term, including equity and bonds. People need to understand that direct access is needed, and to be taught that returns and risk are connected. It is a question of culture and the culture of the policymakers.
2.6.2. Tax incentives should help to developing retail investment
An industry expert outlined that another issue for the institutional investor is the possibility of investing in non listed companies. This is possible; however, it must be kept in mind that institutional investors, particularly insurance companies, have already decentralised certain of their departments and transformed them into companies. IT and many other services are already non listed companies. Expectations on that side should be low. The problem is around increasing the size of the stock exchanges and having a level playing field.
Increasing the size of the stock exchange goes back to incentives to the private investor. There have been past attempts in France and Germany to exempt from tax a given amount invested for five or six years in the stock exchange. That has been successful in France at least and could be an agreed scheme in the EU framework of reinforced co operation. The other incentive should be a similar incentive for the private investor in the form of a tax exemption to invest in ELTIFs set up by the European Commission. The industry must carefully ensure that the incentive is the same for all forms of long term investment. Italy has just launched individual savings plans where, basically, one can invest some amount of money every year with less taxation if it is a long-term investment, and at least part of it is in SMEs.
3. Is there a lack of funding or a lack of bankable projects?
3.1. The Funding Available Fails to Match Investment Opportunities
An industry representative outlined that the insurance sector is deeply concerned with all of the matters of investment because each year they invest some €9 trillion into the economy, a lot of which goes into sovereign debt. They also invest in corporate bonds, although the good corporate bonds are limited. From the insurers’ perspective there is funding available, but there may be a lack of big infrastructure projects.
A public authority representative mentioned, regarding the lack of bankable projects, that their organisation has launched a European Investment Project Portal, which currently has some 150 projects covering more than €52 billion.
3.2. A lack of funding due to the current reduced ability to achieve sustainable income for savers through the financing of productive investment
An industry representative stated that in Germany, the belief is that there is no lack of projects. Germany has many projects that are not bankable, investable or marketable. The representative supports the PEPP initiative to raise private pensions and savings to build bigger pots of funds that are available to invest in the mid or long term in such sustainable projects. A PEPP could contribute in relation to growth rates in the EU.
Regarding the PEPP initiative, and surrounding discussion, there are two questions to answer. First, if there is a lack of finance for such projects, the industry needs to investigate why. There are slow growth rates in the EU because of the change in demography, and therefore the EU needs to consider financing projects as well as giving people in the EU the chance to build a sustainable income for retirement. That leads to the second question, which is how a PEPP product should be designed.
3.3. A lot of money, but a lack of bankable projects due to regulatory and economic uncertainty
An industry representative explained that their organisation is a national long term investor and the speaker would therefore give the views of a long term investor on the matter. Despite there being a lot of money available, there is a lack of bankable projects. The key issue is uncertainty. After the financial crisis, many economic and regulatory uncertainties have deterred both investors and economic agents from long term investment, which is why it is important to have actors such as long term investors. They are sometimes called national promotional banks and institutions (NPBIs) and can return trust and confidence to economic agents.
3.4. Insurance companies should consider investing more in equity markets
An industry representative agrees with other panel members that many things need to be done on the offer side. The representative has witnessed, in both the corporate and national market, a move downwards in the percentage of assets invested in equity over the years since Solvency II was prepared and implemented. The current situation is paradoxical. Equity markets are improving and there is more investment, but whilst only 10% of the representative’s organisation’s assets are in equities, 10% are in cash, which is currently ‘a nightmare’ for asset managers. The representative’s organisation’s asset managers would invest more in equity if there was a chance to revise the regulatory capital charges.
A public authority representative commented that the EU needs to look at the other side rather than to continue to debate the regulatory relief.
4. The challenge is to match long term investment opportunities with financing supply
A public authority speaker stated that the panel ought also to discuss the other side and what projects are available. Long term infrastructure is often discussed, but the other sorts of long term projects are those from corporate entrepreneurs. Many obstacles that cannot be tackled are endogenous. What can be done is on the other side, which creates something of a supply and demand discussion.
4.1. CMU should contribute to improving the probability of matching demand and supply
A public body representative explained that there is a queue of individuals at banks asking for money for bad projects, as well as a queue of banks and bankers in front of the few very good corporates who are giving them money with very low rates. There are possibly many firms between those two positions. The topic is therefore whether that should be an obstacle.
The CMU is about trying to broaden the demand and supply side, and understanding whether they can find entrepreneurs and investors that give them money. The relevant market is larger.
5. The Role of the Public Sector
A public authority representative stated that an important effort has been launched to support investment via the involvement of the public sector. The panel are also aware of the role of promotional banks. The representative questioned whether public support is needed to invest in the current environment.
There are 21 investment platforms under the EFSI and more than 100 projects developed in co operation between the EIB and the national promotional banks.
5.1. NPBIs and long term investors as catalysts for other economic agents
An industry representative believes that public support is needed to invest in the current environment. The speaker emphasised, first, the importance of NPBIs and long term investors as catalysts for other economic agents, and second, the importance of investment platforms. Public and private long term investors are important because they can act as catalysts vis à vis other investors and vis à vis project owners. It is clearly an asset to have an NPBI on board when one has a project, in relation to the investment side and as a way to answer the first question about the lack of long term funding.
5.2. Helping project owners to structure and set up bankable projects
The industry representative continued that, on the other side, long term investors are also important in helping project owners to structure and set up bankable projects. There is a lack of bankable projects, but huge investment needs in the EU’s growing and aging economy. It is important to have actors that are sometimes able to help small companies to structure their projects in order to make them bankable. Technical assistance, financial engineering and financing are complementary facets of the long term investors’ job, and are important to answer the problem encountered in Europe.
5.3. Creation of financing platforms
Regarding investment platforms, an industry representative outlined that what the industry call ‘investment platforms’ consist of a portfolio of projects financed through tranched liabilities, with the EFSI adopting a subordinated position in order to crowd in and attract private investors. Investment platforms are a useful instrument that should be further developed with the extension of the Juncker Plan because they allow long term investors to finance smaller infrastructure projects. It is important to finance those kinds of larger infrastructure projects, but there is also a need to go beyond that and to have smaller projects within the scope of the Juncker Plan. The EIB is important in developing that kind of infrastructure, but the EIB also needs NPBIs in different countries to help it roll out those financial instruments.
5.4. The public intervention should be more limited and smarter
An industry representative outlined that the world has changed because of non conventional monetary policies. That has affected all market participants, but national promotional banks, multilateral and development banks should also change. The representative’s organisation has changed from being liquidity provider to become greater risk takers and to be more focused on the longer term in order to provide the market with a long term appetite, which is currently lacking because banks, due to new regulation, currently face greater impediments and are less suited to acting in the longer term.
There is a need for public support, but in quantitative terms it would be less and should be smarter. There should be smarter intervention in the two areas of risk appetite and longer tenures.
The final objective must be to act as catalysts and as a crowding in tool for more investment from the private sector. The representative’s organisation is simply an enabler. The Juncker Plan will be a success through the EIB and national promotional banks doing things properly, and because they are able to work hand in hand with the private sector. There are endless examples of how public intervention can crowd out the private sector simply due to bringing something to market participation that the others do not have and starting to do something that it was not doing before, but which other private participants had been doing before. It is simply a zero sum game, so nets nothing. If they do so smartly, the industry can learn by doing.
The industry can be financially subordinated or term subordinated to act longer than other participants, which gives comfort to those other participants, especially in the private sector. That is a crowding in effect; that is how the industry should work.
5.5. Favouring standardisation
An industry representative highlighted the topic of standardisation. In project financing at large there is a need for standardisation in order for the private sector to come in with more confidence. That can be done in several ways. Part of it is providing a comfort zone. The Project Bond Initiative by the EIB is starting to think about this. It needs to be revisited because it has a lot of merit in the current context, with QE. Those types of public interventions are the types of smart interventions that should be promoted in Europe.
5.6. Public institutions have to help local networks or ecosystems, which accelerate the structuring of the projects
An industry expert suggests that the lack of bankable projects is likely due to uncertainty, but not solely. The world is changing quickly. In the new software industry two demands have to be considered, as they increase risks: first, most costs are being spent before the production phase; and next, the possibility of quickly increasing the scale of the company and of the investment.
The industry expert explained that facing that change in the technological environment of companies, there is a need to rely more on what exists in different countries in terms of clusters, networks or ecosystems which accelerate the structuring of the projects. Often projects are seen where the authors have forecast an expense of capital need far below the real necessities. Those interactions in those clusters help to make a project profitable and bankable or, if not bankable, able to be presented to the European Investment Bank.
Furthermore, the focus on geographical and multi sectoral projects is often helpful in producing externalities that the small and very small companies need more than the big ones.
An industry expert stated that the Juncker Plan is well adapted to work with platforms, bring in expertise, and work with sub platforms which have the clusters which help to create the project, especially in the innovative fields, which is why the work with the public banks and local platforms is key and should be a new branch of development of the Juncker Plan. That is not a dialogue between a provider of capital and an entrepreneur, but a dialogue with a small region and a small group of companies.
6. How to channel more private funding towards investment
An industry representative explained that there is now hope that through funds (pooling smaller projects), or more projects, there will be more opportunities to invest in large infrastructure projects. The other obstacle with regards to availability is the slow development of a number of funds, especially the ELTIFs.
6.1 An appropriate design of the PEPP Is essential
An industry representative hoped that any initiative, including the pan European personal pension (PEPP) would foster insurers’ capacity to invest more.
A public authority representative stated that, beyond insurance, the pension sector is important and the industry sometimes hears of obstacles to investment from the pension sector.
A regulatory body representative also outlined that their organisation has started working recently on another project: a Pan European Occupational Defined Contribution Pension scheme. It is another idea, but ultimately the same as the PEPP. An economy of scale needs to be created because the pension market in the EU is so fragmented. The PEPP is therefore a possible framework to overcome cross-border hurdles and to promote a single market for pensions in Europe . Providers of PEPPs are long-term investors as they can match their long-term liabilities with long-term investments and therefore play a key role to enable efficient financial markets; they are the potential key actors in the Capital Markets Union.
6.2. Many aspects and features of the pension product should be clarified
An industry representative explained that their institution spoke about the past, but need to speak about the future and what a modern product could look like. They need to consider guarantees and how they could and should design such a product as the PEPP, including customer protection as well as the idea that the product is able to finance the projects mentioned, if they are bankable and marketable. A public authority representative outlined that it is key for their organisation that the product is a prudentially sound second regime that is demonstrably trustworthy, transparent and cost effective and can successfully overcome hurdles and inefficiencies, as currently faced by cross-border businesses and offerings.
It needs to ensure the highest standards in transparency, fairness, governance and risk management.
The design of the PEPP should match efficient investment portfolios that mirror long-term retirement objectives. Consumer need to be supported by a strong default investment option and optional, fair, protective risk sharing mechanisms:
• Standardised information provision
• Standardised limited investment choices, with one core “default” investment option, where the investment strategy takes into account the link between accumulation and decumulation
• Regulated, flexible caps on costs and charges
• Flexible biometric and financial guarantees.
The design of the PEPP needs to ensure conditions to allow citizens to invest in a balanced portfolio, including assets such as equities, property, infrastructure and green technologies.
With the appropriate safeguards, this will provide a good chance to accumulate a pension that outperforms inflation and grows to levels that can provide a decent standard of living.
The PEPP should have a long-term perspective in its investment policy to better reflect the long-term nature of retirement savings to provide stable funding to the real economy. Therefore: minimum holding periods to mitigate the surrender risk. Sustainable investment in illiquid assets should match liabilities with a corresponding illiquid profile.
EIOPA believes that life-long annuities should play a role in the decumulation phase of the PEPP, but the decumulation phase should be also more tailored to the personal circumstances and needs of the consumer, allowing for flexibility and choice.
This would enable consumers to participate in the financing and long-term returns in stable cash flows for key CMU assets, such as equities, infrastructure and green investments.
The speaker’s organisation has been working on the PEPP product for some time. They have advised the Commission to put in place some initiatives. The Commission have followed up and it seems that very soon there will be a proposal on those products.
The public consultation conducted by the European Commission (EC) shows that need, and the speaker’s organisation is keen to contribute to the consumer satisfaction with personal pensions.
There are still points that need to be addressed, which the Commission is working on. First is taxation. Notably, the product must be a true pension product. That has been fascinating to discuss because the products are progressing well.
Two challenges arise in gathering those characteristics: first is the question of tax; second is solvency. Industry players must be faithful and reliable for their clients. That was the key objective and the main reason Solvency II was welcomed, since it is known that it will deliver. On the tax issue the PEPP should have the same tax advantages as the national personal pension products.
In France, an initiative taken by the regulator and the Ministry for Finance at the end of 2016 will revolutionise the national market. They are now seeing a growth in new FRPS funds (Fonds de Retraite Professionnelle Supplémentaire - FRPS), professional supplementary retirement funds, which will be ruled according to Solvency I requirements which receive extended support from the insurance industry. Those matters are likely being discussed in Frankfurt.
6.3. Targeting younger people in the EU
An industry representative commented that the world has changed. The returns of the past have not come back until now, after the financial crisis. The representative advocates designing a private pension product for the future with a modern plan design facing the target group: the younger people in the EU. The representative’s organisation needs to ensure that older people get the right income if they are retired; however, younger people regularly change jobs and want to work across Europe, so the industry needs to open their minds and consider the new modern plan design for such a PEPP.
An insurance industry representative agrees with much of what had been said. As insurers, they encourage scalable, adapted, individual or collective pension products to allow Euro citizens to begin saving for their retirement as early as possible in their career. Studies by the Commission two years ago showed that, especially in those countries that are not richer today, the gap to fill to maintain the level of pension in relation to the level of a lower salary can be huge in terms of GDP. Failure to encourage everybody in Europe to save for their retirement will create a ‘catastrophe’.
At the same time, it is clear that a pension product should mobilise more capital for long term investment. It has to be European and long term. European products are a good idea. The next generation are growing used to multi employer careers, multi member state careers and that kind of thing. The further they go, the more they will need those products, which is why it is encouraged for both the individual or collective pension plans.