European Pension Funds: Turning More Aggressive?

Abstract

Assessing whether pension funds are becoming more aggressive requires a serious look at current European Union pension provisions in terms of structure, demographics, costs, and recent pension reforms. Taken together, these factors argue for a modest shift into equity by European pension funds. A number of factors influence a pension fund's equity allocation--accounting standards, funding rules, taxes, and regulations. Despite shortcomings, a simple asset allocation model can provide some sense of a plan's equity capacity if it assumes a multiyear horizon, changing risk premiums, and constant rebalancing.