The fact that low interest rates lead to sustainable economic growth is obviously positive for the pension financing. But the lower economic growth prospects are blocking this effect. ‘We are approaching an alarming situation,’ warns Philip Neyt of PensioPlus.
‘Trade wars, globalisation and other labour market trends are putting our pension financing under tremendous pressure,’ says Philip Neyt, chairman of PensioPlus, the umbrella organisation of the institutions for occupational pension provision and the organisers of a sectoral pension plan. ‘Link this to the aging population and you get an alarming situation.’
In addition, the pension funds are being confronted with a double setback: the low interest rates are resulting in high pension obligations, while investments in low-interest-rate assets, such as bonds, lower the interest rates even further. This creates a vicious circle, warns Philip Neyt. ‘This negative spiral also slows down the investments in the real economy, resulting in reduced economic growth.’
This negative spiral is maintained, or even reinforced, by the heavy buffer requirements that institutional investors have to keep. Philip Neyt: ‘I call this a rigid short-term policy, which conflicts with another policy trends: taking the pension later as a result of longer career paths.’ Not only the private investor is hoarding too much on saving accounts today, but also the institutional investor is leaning towards this strategy, partially under pressure of the regulations and the (European) policy that works procyclical. This vicious circle should be broken sooner rather than later, says Philip Neyt. ‘This only leads to the diminishment of our fiduciary duty to guarantee a decent pension.’
Picture: ©Jonas Lampens