Automatic enrollment and auto escalation could make use of participants' inertia to improve their retirement outcomes in the European Union as more countries move toward defined contribution systems, attendees heard Thursday at the PensionsEurope conference in Brussels.
Even with an increase in auto features, however, participants' financial literacy remains low and there are few tools available to help them compare investments as well as various tax and non-tax incentives from countries, said Stephanie Payet, private pension analyst from the Organization for Economic Cooperation and Development during a panel discussion.
The growth of DC plans comes as existing pension plans face multiple challenges, including increasing longevity, low interest rates and low growth. Participants, too, are increasingly skeptical about their retirement outcomes, Ms. Payet said.
Panel speakers agreed that plan participants do not trust their domestic pension systems in Europe, with citizens in some countries questioning whether their state and workplace plans will deliver as promised. Others worry that legislation to address solvency issues will alter benefit terms as they reach retirement.
In Poland, where the government introduced on Jan. 1 a new workplace defined contribution system, "We wanted to ensure that the rules around the legislation were safe for (participants)," Polish Chamber of Pension Funds President Malgorzata Rusewicz said during the panel.
"It was important to guarantee that the savings were privately held," Ms. Rusewicz said.
Under the new DC act, she said, participant savings will remain in employee accounts and will not be brought back into a state-owned pool of savings held in a collective account, as the government did in 2014.
Speaking on the panel, Gerard Riemen, director of Dutch Federation of Pension Funds, said that in the Netherlands historically, "it was clear you are getting a guaranteed indexed pension."
But even as assets in retirement plans have soared, low interest rates have eroded funding ratios, a difficult concept for participants to understand. And because participants share risk in retirement as part of a collective defined contribution plan, outcomes are under pressure.
"People started to ask questions," he said.