Getting old and staying wealthy

Getting old and staying wealthy

19-03-2015 | リサーチ

As the demographic dividend is used up in many Western countries and dependency ratios are increasing, the current set-up of many pension schemes is unsustainable. We see four trends that are likely to influence global pension systems. Fully integrated insurance companies, ICT providers and financial planners are most likely to benefit.

  • Jeroen van Oerle
    van Oerle
    Portfolio Manager

Four trends shaping the global pension system

We observe four trends that are likely to impact pension systems throughout the world. First, we should see a further shift away from pay-as-you-go defined benefit systems (DB) towards defined contribution (DC) schemes. Second, we believe that the shift towards DC will lead to personalization as provisions and investment styles are likely to become custom-made. Third, we see an increased need for financial planning and education in countries where defined contribution is implemented. We also observe an increased general demand for ICT integration in order to manage the progressively complex pension data as a result of individualization. Fourth, we believe there will be more room to combine home, health and life into one product solution.

The impact of demographic change on pensions is only conditionally investible

A range of papers starting from the late 1980s have tried to infer investment opportunities from demographical trends. However, many of the fundamentally accurate conclusions ultimately did not generate an investment edge due to the political, legal and social organization of society. These conclusions were not wrong, but tried to time the trend, underestimating the fact that the trigger ultimately depends on a political decision-making process that has multiple other dimensions besides the economic rationale. Especially in the world of pension system changes, economic reasoning and political outcome can be miles apart.

‘Conditionally investible’ implies there are indeed investment opportunities

Provided that politics allows for the pension system trends to be implemented, we have identified winners and losers from an industry and a geographical perspective. It is important to understand that we do not predict timing nor do we make investment recommendations. Our investment suggestions should be considered during the limited time horizon between clarity on the political direction in a specific country and the full incorporation of policy changes in company valuations.

Winners are well integrated, make use of technology and have scale

Figure 1 | Potential winners and losers of the pension theme

Losers lack scale and scope

Source: Robeco fundamental research

Potential winners

We expect fully integrated insurance companies, ICT providers and financial planners to benefit.

Fully integrated insurance companies become the new one-stop insurance shops

Many people have insurances on their possessions and often on their health as well. In a world in which defined contribution becomes the standard, pension insurance is the final additional insurance option. We believe that the combination of products will push people towards insurance solutions rather than products. The diminishing role of governments in social security combined with risk aversion could transform the demand structure for insurance. By means of paying a single, personalized, premium the customer will receive a service solution for home, health and/or life and is able to cover all risks with one single solution. In addition, we believe that insurance companies that internalize their asset management capabilities have a benefit versus those that do not have that capacity. The main reason is that there is more flexibility in asset class diversification when the asset management capability is internalized.

ICT providers and financial planners become indispensable rather than optional

The move from DB to DC will lead to personalization and is therefore likely to increase the need for financial planning. In many current DB systems the beneficiary only makes minimal calculations, and does not plan in advance how to get to a certain pay-out level. The inputs are fixed and the outcome is guaranteed. The number of variables to manage becomes much larger under a DC system. Surveys found that many people do not understand the complex pension systems or are not interested in spending much time and effort in order to educate themselves on something that will take place in the far future. We believe that these dynamics will lead to an increased demand for financial planning services.

In case customers do want to do it all on their own, we think the ICT environment must be capable of dealing with such flexibilities. We expect input data, update data and financial planning to be combined into software solutions that will be offered by either individual software providers or insurance companies in the near future. ICT is not solely a tool to communicate to clients; it also serves to administrate individual requirements and choices and to decrease overall operating costs.

Potential losers

We do not think traditional asset managers are optimally positioned to benefit from an increased asset management pool. The lack of scale and scope are important determinants. The accumulated pension assets are likely to be invested in multi-asset products with large asset managers in order to keep overall management costs low. In addition to the search for multi-asset solutions we think insurance companies will become more active in terms of ETF allocation and alternative investments (like mortgages or direct real estate). Large insurance companies are internalizing asset management capabilities. Although this is a logical step for insurance companies, it is less logical for asset managers to take on insurance capabilities. The increased competition among traditional asset managers in addition to the increased volatility in manager choice is an industry dynamic we do not like from an investment perspective.

Places to be: China and Brazil

We think the trends are likely to occur globally. However, we believe they can be boosted in certain countries because of the need to change in combination with local government’s willingness to change. We think China and Brazil are most likely to transform their current pension system. Europe is likely trapped in very long bureaucratic decision-making processes to change the unsustainable pension systems of several member countries. India and South Africa are not likely to change soon because the demographics are less stringent. The US, UK, Canada, Scandinavia and Australia have steady pension systems that will probably not change drastically but gradually move into the direction of the aforementioned trends.

Figure 2 | Geographical opportunity heat-map
Source: Robeco fundamental research

Concluding remarks

Politics has a large influence on the design of the pension system. As costs pile up, many of the current systems are not sustainable from an economic perspective. However, if political pressure is high to keep the current system up and running (because it is likely that pension benefits will deteriorate in a new system), there is less likelihood of big pension system reforms.

When looking at recent pension system reforms in Chile, the UK and Australia we find that politics have been the critical component, but we could not find a homogenous set of variables that triggered the change. We believe we are able to identify the direction in which the global pension system debate is moving, but we cannot pin-point exact timing. We therefore think our analysis is best used in the period of time when it is clear, from a political point of view, which companies are able to operate and under what conditions.


当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。




商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会