European countries are faced with the problem of an ageing population, mainly due to declines in fertility, but also due to increased life lengths. The ageing population is putting pressure on the state pensions, as the
that need to provide for those in need of pensions is just getting smaller. The size of
, relative to the size of the economy, however, varies widely between the countries. Denmark for example, had assets in pension funds measuring up to around 230 percent of their gross domestic product (GDP), while in Greece the corresponding share was only one percent.
What is a pension fund?
Pension funds within Europe vary from country to country differing in standard practices, structure, and size. A pension fund is any program, fund, or scheme that provides income to individuals upon retirement. Pension funds may be privately run by a specific company or organization. Pension schemes may also be a public state-owned initiative. The Government Pension Fund, of Norway, is comprised of two separate sovereign wealth funds (SWFs) owned by the Norwegian government this public pension fund (PPF) is one of the
largest pension funds in the world by total assets. PPFs often operate by reinvesting surplus state revenue. The Government Pension Fund, of Norway reinvests revenues from the petroleum sector generating a profit to provide retirement payments to its citizens, as the Government Pension Fund, Norway has few restrictions on membership this is an open pension fund. The ABP pension fund is another leading European fund. The ABP along with several other Dutch pension funds contributed to a
total of over two trillion euros in Dutch pension fund investments. Unlike the Government Pension Fund, of Norway however, the ABP pension fund is considered to be a closed-end fund as it is offered only to government and education employees.
Asset management
The
total assets held in pension systems throughout Europe must be effectively managed to generate a
net investment return on pension fund investments. Pension funds typically allocate the majority of assets to fixed-income and equity products, making adjustments as needed based on factors such as economic conditions and the portfolio lifecycle. Pension funds have the ability to be more aggressive earlier in investing in higher-risk securities to achieve higher gains and have the time to recoup any losses endured.
Fund managers in Europe will typically allocate assets across debt, equity, and hybrid financial securities. Broad portfolio allocation allows pension fund managers to diversify risk and keep up with changing economic and financial challenges being presented in the global economy.
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