PensionsEurope has stressed the importance of ensuring that pension savers achieve secure retirement outcomes as countries shift from defined benefit (DB) pensions to a defined contribution (DC) system, in its report Road to DC: Understanding the Shift.

The report seeks to analyse the ongoing transition from DB to DC pensions across European member states, and provide solutions for developing resilient and adequate retirement provisions for a more DC-focused landscape.

It noted that there was no one-size-fits-all solution to DC pensions due to the differences in the precise nature of DB and DC across member states, but outlined some key principles for achieving good retirement outcomes.

PensionsEurope argued that workplace DC pension schemes should prioritise good outcomes for members, based on a “robust yet flexible” design, while investments should be suitable to participants’ needs and any default arrangement should be appropriate.

Promoting cost-effective retirement arrangements was also highlighted as important, both in the accumulation and decumulation stages. Costs and charges especially should offer value for money, but it was essential that a ‘race to the bottom’ on fees was avoided.

The report added that good communication must ensure that scheme members have a clear understanding of what to expect at retirement and their responsibilities in meeting those expectations.

Furthermore, managing DC schemes required good administration systems for accurate benefits, prompt transactions, and positive retirement outcomes, and DC schemes should default to providing lifetime income in decumulation unless other pension arrangements cover adequate lifetime payouts, according to the report.

While the shift from DB to DC has been taking place for many years in some member states, the paper indicated that some historically DB/hybrid-dominated systems have been experiencing a more recent transition to DC, with varying magnitude levels.

Despite the growing focus on DC pensions, the majority of members are still currently enrolled in DB schemes.

In the transition, PensionsEurope encouraged robust scheme design, comprehensive decumulation options and tailored legislation to national contexts, and argued that striking a balance between regulation and operational efficiency was essential to safeguard members’ interests and minimise administrative burden.

In the report foreward, PensionsEurope chairperson, Jerry Moriarty, said: “In recent years, many member states have experienced a shift from traditional DB pension schemes to DC or hybrid models. Millions of Europeans already depend on workplace and/or occupational DC pension schemes alongside state benefits, and this reliance is set to grow.

“Employers are shifting away from DB to more stable options, while governments are working to bridge the gap between state pensions and citizens' retirement needs amidst economic and demographic challenges. These transitions have significant implications for the design and delivery of retirement benefits.

“This paper offers a comprehensive study of the ongoing shift to DC in Europe, examining its ramifications and outlining key principles to design resilient pension schemes tailored to the diverse needs of retirees across member states. By providing these insights, it aims to guide policymakers and other stakeholders in navigating the evolving pension landscape and pave the way for sustainable and adequate retirement provisions for future generations.

“Prepared by the Standing Committee Future of Pensions, this publication underscores our commitment to understanding present and future pension challenges and finding optimal solutions. We present this paper as a contribution to the evolution of DC schemes and a natural follow from our previous papers on the topic.

“Through our member associations and our corporate and supporter members, we have access to resources and expertise, which will continue to be used to participate in the debate on DC schemes and help to ensure better outcomes for members and beneficiaries.”

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