Connecting savings with Europe’s economy

00:00:03: Hello and welcome to this Alfie podcast part of the annual report series.

00:00:07: In this episode we are looking at Europe's financial future, how do we move from a culture?

00:00:15: The Savings and Investments Union project puts a strong focus on retail participation in capital markets, financial literacy and supplementary pensions.

00:00:24: To discuss these priorities I'm joined by Serge Weiland CEO of Alfie.

00:00:28: Hello Serge!

00:00:29: Hi Mikaela

00:00:30: One of the clearest you messages today is that Europe needs greater retail participation than capital markets.

00:00:36: In your view what's still stopping people to switch from saving to investing?

00:00:41: Well as you point out Mobilising retail savings is one of the cornerstones for creating deeper capital markets in Europe and financing Europe's triple transition, be it energy transitions or digital transformation and sovereignty broadly speaking including defence.

00:01:03: Our EU citizens still sit on a huge pile of cash sleeping cash accounts and savings accounts in banks, that amounts to about forty percent of EU retail savings.

00:01:19: So why don't our citizens invest?

00:01:22: There are a few explanations to that.

00:01:26: First of all, certainly lack financial know-how and literacy.

00:01:33: Secondly still probably lack access to products and investment products.

00:01:39: Thirdly also lack culture in catering for your own wealth And making sure you're financial assets prosper.

00:01:50: The Commission has put financial literacy really high on the agenda again.

00:01:54: What does effective investor education look like for Alfie members if we want to change behavior, not just create awareness?

00:02:02: I mean financial literacy has been at the heart, i think of what many associations do in Europe and certainly Alfie also put efforts into financial literacy over the past decades.

00:02:16: What is changing?

00:02:19: It's not only about theory but more about practice so creating opportunities for individuals to learn get acquainted with financial markets.

00:02:29: I think we very much welcomed the Commission's proposal around creating savings and investment accounts in Europe.

00:02:41: Obviously it is down also to individual member states, to do so... ...to create tax incentives around such account that actually becoming more easy for citizens to engage with financial products without having file tax or complex tax returns.

00:03:02: I think some of the best examples in Europe we have are for example, Sweden, the ISK which is basically a basis point flat tax applied to your holdings and you know, it's a very simple way of actually applying tax to these accounts and has really brought people too invest.

00:03:26: So savings investment account is key means for developing also financial literacy monitoring progress of the implementation such accounts across Europe, which we hope also will lead to a broader engagement in retail clients.

00:03:50: Alfie has been vocal about pensions as being part.

00:03:55: Do you think occupational and supplementary pensions matter so much when we talk about building both investor confidence, and deeper capital markets?

00:04:05: Is there anything the industry can do to help citizens better prepare for

00:04:10: retirement?".

00:04:11: Indeed, in our advocacy we've focused a lot on supplementary pensions also with the study together with University of McGill.

00:04:22: I think this study demonstrates how powerful supplementary pension are for creating deeper capital markets and future-proofing pensions.

00:04:32: but it is also means to create investor education especially through second pillar occupational pensions, when you look at the positive effects of a supplementary pension in Sweden for example.

00:04:51: The fact that auto-enrollment or I would say mandatory enrollment which is the case in Sweden whereby... A portion of your salary automatically gets allocated to supplementary pensions means that every single citizen will engage, ultimately engaged with financial products.

00:05:14: We'll learn about compound interest.

00:05:18: we also learned a deal where markets going up and down And also recognizing the long term effects of investing.

00:05:27: The other aspect of pensions is by definition it's a long-term investment horizon which also allows for asset allocation to be more diversified, also beyond public markets into potentially private markets and therefore considering a key elements to finance infrastructure, startups and the broader real economy in Europe.

00:05:57: You mentioned auto-enrollment.

00:05:59: we also hear about pension dashboards tracking tools and a review of frameworks such as IORP or PEP.

00:06:06: which of these measures do you think could make the biggest difference?

00:06:10: We have advocated for indeed also creating a certain level of transparency when it comes to the future.

00:06:25: European or most European pension systems are based on a strong first pillar and I think there is no reason why that should not be the case also in the future.

00:06:37: However, push the commission to come forward with proposals, to generalize consistent reporting about what people are entitled to receive out of The First Pillar.

00:06:57: I think for us that is really a starting point ideally developing consistent methodology on how to honestly report about future entitlements our citizens can expect especially for younger generations so they realize they can not only rely on the first pillar and will need to actually supplement that first pillar with either in their own private savings or you know second-or third pillar pension solutions.

00:07:28: The second element is a number of EU member states including Luxembourg still need to work on the framework around to make sure that these products are fit for purpose, given the long-term nature of those savings.

00:07:53: They are geared towards at least in the first few decades toward a hundred percent equity exposure rather than capital guaranteed solutions which are detrimental to investors.

00:08:08: And then so that's about the architecture of products and the availability of products.

00:08:13: Of course also to some degree fostering competitiveness in various markets, So different product providers can provide solutions.

00:08:23: not only insurance based products but also asset management-based products or banking solutions Can be offered.

00:08:33: Thirdly indeed auto-enrollment or at least making sure that there is a significant engagement from citizens in these solutions.

00:08:47: I think on the review of the IRB or PEP, we believe that the PEP could be very interesting product and this has been included also by the Commission in their proposals, both for third pillar so voluntary.

00:09:09: pension contributions, but also as a second pillar product next to the IORPs.

00:09:19: We could envisage PEPS being set up with employer contributions made possible which we believe would create opportunities for Luxembourg in that space.

00:09:36: Thank you very much Serge.

00:09:37: What comes through is that investor participation in capital markets begins with products but requires understanding and long-term confidence,

00:09:48: i.e.,

00:09:48: why financial education and stronger pension solutions are becoming such central themes on the European agenda.

00:09:55: For those who would like to know more about Alfie's proposed solution we invite.

00:10:04: Thank you for listening.