The EU Commission's (EC) plans to establish a savings and investment union and the associated debate on strengthening private and occupational pension schemes have come too late, according to the Centre for European Policy (CEP).

It warned that additional efforts were "urgently needed" at both national and EU levels.

In its latest cepInput paper, the think tank said that despite years of discussion on strengthening the EU’s second and third pension pillars, progress has been “modest” and “uneven” across the bloc.

While countries such as the Netherlands, Denmark, and Sweden have well-developed funded systems covering the vast majority of workers, most member states still rely heavily on state, pay-as-you-go schemes, the paper stated.

The CEP noted that the commission’s savings and investment union strategy - which includes proposals to expand auto-enrolment, develop pension dashboards and tracking systems, and revise the IORP II Directive and pan-European personal pension product (PEPP) regulation - is an important step.

However, it argued that the plans come against a backdrop of worsening old-age dependency ratios, shrinking working-age populations, and underperforming supplementary pension markets.

“Given the looming demographic shock and the urgent need to mobilise capital for long-term investment, the EU cannot afford a gradualist approach,” the report claimed.

“Strengthening the second and third pillars is not only essential for adequate retirement provision but also for channelling household savings into productive investment.”

The CEP pointed to EC data projecting that average public pension replacement rates will fall from 43.8 per cent of gross salary in 2022 to 35.5 per cent by 2070, with much sharper declines in some countries.

Without more developed private provision, the think tank warned, many future retirees risk facing significant income shortfalls.

Beyond the commission’s proposals, the paper surveyed a wide range of reform ideas from policymakers, supervisors, and economists - from EU-level long-term savings labels and simplified PEPP structures to expanded investment freedoms for IORPs and enhanced tax incentives for private saving.

Some of these proposals have faced criticism from the likes of PensionsEurope, who called for an opt-out clause for member states if the Pan-European Personal Pension Product (PEPP) is expanded to include occupational pensions, warning that such a move could disrupt national pension systems.

The CEP concluded that while there is now an “unprecedented level” of political
attention on supplementary pensions, reforms must be accelerated and coordinated to have a meaningful impact.

“The time for incremental steps has passed,” it warned.

“A decisive shift towards more robust funded pension pillars is urgently needed to safeguard living standards, stabilise public finances, and support Europe’s competitiveness.”

This call was echoed by Better Finance, which urged the EC to take “decisive action” on supplementary pensions to end the “insufficient long-term financial performance” that “too many of these solutions” have demonstrated.

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