EU Commission bets on supplementary pensions to drive investment and shield retirees’ incomes

Brussels – Scraping the bottom of the barrel, the European Commission is betting on supplementary pensions to create capital that can, in the immediate future, finance investment needs to revive the continent’s asphyxiated economy and to support new programs, such as defense. The project will also serve as an alibi for governments that are unable to guarantee adequate pension systems because they fail to protect jobs, while blocking migrants worsens the demographic. A private scheme could help those who have the means to put something aside. 

The Commission today adopted a package of measures “to help citizens secure adequate income in retirement,” by improving access to better and more effective supplementary pension. The proposed actions, they explain in Brussels, aim to complement, not replace, public pensions, which form the basis of pension systems in all member states. 

The package is part of the Commission’s Savings and Investment Union (SIU) strategy, which seeks “to create more opportunities for households to build their wealth through capital markets, while boosting EU economic growth and competitiveness.”

The EU executive recognizes that changes in demographics and labour market dynamics require adapting the pension systems. Supplementary pensions – both occupational and personal pension schemes – “can help citizens achieve more diversified retirement income, enhancing financial security and stability when retiring.” According to the Commission, they can also help reduce the “gender pension gap between men and women, which currently stands at 24.5 percent.” 

The executive admits that “stronger and more efficient supplementary pension schemes can also contribute to Europe’s economic growth and competitiveness by mobilising long-term savings for productive investments.”

The aim of the proposed measures is “to strengthen both the demand for and the supply of supplementary pensions.” The initiative, however, will have to be delicate as it must respect the competences of the Member States to organize and design their national pension systems, as well as the autonomy of the social partners, if they are responsible for establishing and managing pension schemes.

 Maria Luís Albuquerque, Commissioner for Financial Services and the Savings and Investment Union, meeting journalists, explained that “Our goal is clear: everyone should be able to maintain a good standard of living in retirement. This is why we have adopted a comprehensive approach to strengthen supplementary pensions to complement, not replace, public pensions. Our measures will give Europeans better tools to plan for old age with confidence, while also unlocking new sources of funding to boost the EU economy.” Albuquerque then urges “all stakeholders, including Member States, to join our efforts, as effective implementation at the national level will be critical to achieve those shared objectives.” 

In its SIU initiative, of which this proposal is a part, the Commission aims to improve citizens’ financial knowledge to free up savings for investment, on the one hand, and to help people get the best return on their capital, on the other. 

The proposed measures

 The Commission recommends that Member States implement automatic enrollment, i.e., the automatic inclusion of workers in supplementary pension schemes, with complete freedom for individuals to opt out. A second measure aims to develop further comprehensive pension monitoring systems to provide citizens with a clear overview of their pension entitlements and benefits across all pension schemes. The proposal then supports the development of national pension dashboards so that policymakers in Member States have a clearer view of coverage, sustainability, and adequacy of their pension systems. The national dashboards would eventually merge into an EU-wide pension dashboard. 

To unlock the potential of occupational pensions, the Commission proposes strengthening and modernizing the framework to better support efficiency, scale, and trust in supplementary pensions.

Legislative proposal to amend the Pan-European Personal Pension Product (PEPP) Regulation 

 The revision of the PEPP Regulation aims to make pan-European personal pension products (PEPPs) a more attractive, accessible, and affordable option for savers. It will remove existing requirements and design features that have hindered the spread of PEPPs, while continuing to ensure a high level of consumer protection, they say in Brussels. The revision introduces an affordable and easily accessible “basic PEPP,” invested in simple financial assets and offered to the public without advice. Savers will also have access to “tailored PEPPs” that may include guarantees and more complex assets that require advice to ensure consumer understanding. As a result, PEPPs will be adaptable to different investor preferences and suitable for various types of providers, including asset managers and insurers.

 The proposals to amend the IORP II Directive and the PEPP Regulation will now have to be negotiated and agreed upon by the European Parliament and the Council.