Assets allocated for old age that are not invested in dedicated retirement vehicles, such as European institutions for occupational retirement provisions (iorps), could “wreak havoc” on retirement savings in Europe, according to AF Advisors consultant, Jorik van Zanden.

Speaking to European Pensions, Van Zanden said Europeans have a habit of over saving and many have assets that are earmarked for retirement but are not in pension products such as iorps.

“[These assets] are not always visible because how can you see a bag of money under someone’s pillow? There are a lot of assets that are earmarked for retirement, such as property but even broader… such as savings accounts.”

Van Zanden’s comments are in response to a fact sheet on European iorp asset allocation published earlier this month by the European Insurance and Occupational Pensions Authority (EIOPA), which he believes does not paint the full picture of European retirement asset allocation, or indeed European retirement assets.

“Two-thirds of all IORP assets are in the Netherlands, and it takes three hours to drive from the north to the south of the Netherlands and two hours from the west to the east. There is an incredibly concentrated amount of wealth in retirement assets in the Netherlands,” he explained.

“If we’re talking about the iorp market, we’re not really talking about Europe, we’re talking about the Netherlands and formerly the UK. About €1.5trn is in the Netherlands and then there’s €1trn elsewhere in the rest of Europe combined. That is a huge concentration, which also means if you look at asset allocation, you’re going to have a vision of the Dutch allocation of private assets in retirement.”

Van Zanden believes that the solution is to deepen the capital markets union in Europe, to allow for those assets outside of retirement saving vehicles that are earmarked for retirement to “start working for the asset owners, benefitting from investment returns and vastly outperforming savings products”.

“With such an ageing population, it is not enough to just save,” he said, adding that it comes down to people’s trust in financial markets.

“Even in very well-developed markets like the UK, the reason why people are afraid to purchase an annuity with a provider is because of misselling scandals, distrust in the system…. In Poland and Hungary, private retirement assets were taken back, so trust is something that is hard to overcome but it needs to be done.”

“The second issue and it’s a European issue is we need a capital markets union and not just all these little individual capital markets because there’s insufficient liquidity in that. If you look at EIOPA’s figures and how much assets are invested outside of Europe, it’s a huge amount.

"That’s not bad because it’s good for diversifying your portfolio but on the other hand, there is simply nothing of the same size of the American market to invest in. If Europe really wants to become a world power economy you need to fix the capital markets union otherwise Spotify will always remain an American company instead of a European one,” he explained.

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