Households continue to keep a disproportionate amount of money in bank deposits in most European countries according to a new report by EFAMA published today (22 January).
The report analysed the progress made in recent years by European households in recent years in allocating more of their financial wealth to capital market instruments (pension plans, life insurance, investment funds, debt securities and listed shares) and less in cash and bank deposits.
European households increased their holdings of cash and bank deposits from €10,260bn in 2015 to €13,944bn in 2022, or from 36.7% of their financial wealth to 41.1%.
In parallel, the ratio between the capital market instruments and the cash and bank deposits held by households fell from 1.73 in 2015 to 1.43 in 2022. The massive increase of savings in deposits was driven by the pandemic in 2020 (€1,054bn) and the financial market downturn in 2022.
EFAMA also highlighted that households increased their investments in capital markets to €578bn in 2021 and €574 in 2022bn, compared to an annual average of €303bn in 2015-2019. However, the increase in bank deposits remained substantial: €713bn in 2021 and €486bn in 2022.
There remain considerable differences in the way households allocate their savings across Europe. In Denmark, Sweden and the Netherlands, households hold less than 30% of their financial wealth in deposits. However, in 2022 the share of deposits exceeded 70% in Malta, Portugal, Lithuania, Bulgaria, Slovenia, Poland, Cyprus and Greece.
There are five elements that explain the varied composition of household portfolio across Europe:
o The role of funded pensions in national pension systems
o The extent to which households can expect a large State pension
o The level of gross national income per capita
o The level of financial literacy
o The tax incentives available for investments
Some countries made more headway between 2020-2022 than others. Slovakia, Germany, Norway, Denmark, Luxembourg, Finland, Italy, Austria, Belgium, and the Czech Republic made the most progress. The fact that these countries are quite different in terms of total population, economic weight, and financial development confirms that progress toward greater participation in capital markets can be achieved in any country.
The report also makes several policy recommendations, including:
• Boosting access to, and coverage of, funded occupational and personal pensions, including:
o Developing pension tracking systems to inform citizens about what retirement income they can expect,
o Implementing mechanisms of auto-enrolment for occupational pension plans,
o Revising the Pan-European Personal Pension Product to allow the PEPP market to take off,
o Integrating the European Retirement Week into the EU official calendar to enhance awareness about the need to save more for retirement.
• Keeping access to affordable and quality financial advice for all EU citizens. This requires that the Retail Investment Strategy preserves the existing distribution system for investment products which allows EU citizens to have access to affordable and quality financial advice no matter the size of their investment.
EFAMA’s senior director, Bernard Delbecque said: “If Member States want to foster retail investments in capital markets in a meaningful way, their priority should be to create the right conditions for EU citizens to save more for their pensions. By pursuing this approach in a determined way, Member States would adequately respond to the triple challenge of reducing pension inadequacy risks, advancing the Capital Markets Union, and mobilizing an important source of capital for the European economy to take up the sustainability challenge.”
EFAMA’s director general, Tanguy van de Werve added: “Our report shows that decisive actions are needed at European and national level to encourage more Europeans to become long term investors. The Commission’s Retail Investment Strategy should ensure that European investors have access to affordable and quality advice, that the digital distribution of investment products is facilitated and that disclosures are understandable and decision useful. Also, we encourage regulators to stress the benefits of investing instead of putting off people by constantly focusing on costs and risks, especially as costs are overall decreasing and risks can be diversified away and generate higher real returns.”
