“Suboptimal allocations” made by pension funds are “hindering financial growth for savers”, according to a report by Better Finance.

Its 12th annual pension report has found “significant issues” that it believes threaten the financial security of European pension savers. One of its key findings is that pension funds are “overly conservative” when it comes to asset allocation.

“Many pension products demonstrate inefficient asset allocation strategies, with most underperforming compared to a balanced equity-bond benchmark over a ten-year period. These suboptimal allocations are hindering financial growth for savers,” the report stated.

In addition, the report found that a lack of transparency in cost structures continues to erode pension value. For example, during its research, Better Finance found no public cost data for a third of the products analysed, suggesting that undisclosed fees are diminishing savers' returns.

However, the report also found differences in pension transparency between the 16 countries it analysed.

“While countries like the Netherlands and Italy set high transparency standards, others, including Germany and Bulgaria, suffer from poor data availability, impeding cross-border performance comparisons and highlighting the need for EU-wide data standards,” the report said.

Another threat to savers’ purchasing power is inflation erosion. Better Finance stressed that “many pension products fail to keep up with inflation”, particularly as inflation spikes.

The report stated: “After the 2022 market downturn, 2023 showed a partial recovery, with all 43 product categories examined delivering positive nominal returns. Yet, even these gains were in some cases insufficient once inflation was factored in, especially for products that have struggled to sustain long-term growth.”

It is therefore calling on the European Commission and national authorities to boost transparency and consumer protection within the framework of the Retail Investment Strategy (RIS).

It recommends that authorities ensure transparent disclosure of fees, returns, and product performance across all EU pension products to improve decision-making. It also suggested introducing an EU-wide ‘ecolabel’ and stronger ESG standards for savers prioritising sustainable investments, as well as additional adviser training on these options.

In addition, Better Finance advocates reforming the inducement-based distribution model, which currently favours high-fee, low-return products, to reduce conflicts of interest and promote unbiased advice.

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