Once regarded outmoded and unsustainable, the Book reserve model of pensions has emerged the most resilient in the face of the global financial crisis, a survey reveals.
Aon Consulting’s latest European Business Leaders Survey of senior executives from 11 countries, finds pension plans under the Book reserve model in Austria and Germany “demonstrating their mettle and a competitive advantage in capital-constrained conditions.”
Generous state support, which provides a “competitive advantage in the context of a credit crunch,” is part of the model’s success, explains Aon. The German pension system, it adds, is “robust and flexible in the face of both recession and crisis in financial markets,” along with a strong insurance sector to provide protection should companies be unable to meet their pension liabilities.
German employers operate in the third-highest state pension level in Europe—after Austria and Spain-which gives them an edge over countries with less substantial provisions as they effectively subsidize their labour costs, Aon notes. Meanwhile, countries with traditional defined benefit (DB) pension frameworks such as the Netherlands, Ireland and the U.K. are at a competitive disadvantage.
“Companies in countries with a generous state pension provision enjoy a competitive advantage over those in countries with low state benefits,” says Oliver Rowlands, head of retirement at Aon. “This seems counterintuitive, with low state intervention usually seen as a sign of greater national competitiveness. However, the past year of severe dislocation in financial markets has turned the equation on its head, at least for now.”
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