- Pension funds can play a key role in the SIU but must retain full independence in their investment decisions
- Complex EU financial regulations, like DORA, could be made more proportionate for pension funds
- The EU should promote auto-enrolment through country specific recommendations
- There is a role for investment account with simple, tax-efficient treatment but they should not disrupt well-functioning pension systems
- Regulatory barriers to pension fund investment in venture capital should be scrutinised
The European Commission’s initiative to establish a Savings and Investments Union (SIU) marks a pivotal moment in the evolution of Europe’s financial landscape. Rooted in the ambitions of the Capital Markets Union (CMU), the SIU seeks to deepen financial markets, enhance investment opportunities for investors such as pension funds as well as individual citizens, and improve Europe’s economic competitiveness amid global geopolitical shifts.
The European Union faces serious structural economic challenges, including persistently slow productivity growth, insufficient financial intermediation, and underdeveloped capital markets. The CMU plans that have been in place for the past decade have not delivered. Compared to the US, where capital market instruments dominate household savings, most of EU citizens’ savings are held in low-yield bank deposits. This capital is underutilised, restricting Europe’s ability to finance innovation, digital transformation and climate goals.
With around €10trn (including Norway’s €1.6trn Government Pension Fund Global), Europe’s pension assets play a much smaller role than in the US, where the total amount of funded pensions in the third quarter of 2024 was $42.2trn (€39trn). The total AUM in European IORPs, covered by the EU IORP Directive, were at €3.6trn as of the third quarter of 2024. Pension funding in Europe is concentrated in only a few countries and most of the pension liabilities remain unfunded.
The EC’s new plans, in many aspects based on the Letta and Draghi reports published in 2024, along with a new Competitiveness Compass, highlight the importance of mobilising savings to fund economic growth and reduce Europe’s dependency on foreign investments. The SIU aims to remove financial market barriers and create a more integrated, liquid, and accessible investment ecosystem for investors, citizens and businesses.
Overcoming market fragmentation
Despite previous efforts under CMU Action Plans, European capital markets remain highly fragmented, reducing efficiency and limiting cross-border investments. The SIU prioritises regulatory simplification and harmonisation of insolvency laws, which are currently major barriers to financial market integration.
One key measure is the FASTER (Faster and Safer Tax Relief of Excess Withholding Taxes) initiative, which streamlines tax procedures for cross-border investors, making European markets more attractive for institutional investors, such as pension funds. ‘Faster’ is important for pension funds and it has progressed well, but it will be ‘slower’ in application. The directive was published in January 2025 but will not be applicable before January 2030, so it will not improve the EU’s competitiveness any time soon.
The SIU also seeks to enhance venture capital and growth financing, which are essential for startups and scaleups. Europe lags far behind the US in venture capital investment, leading many innovative companies to relocate from Europe. Europe needs strong initiatives to boost private sector participation in high-risk, high-return investments. Pension funds as natural long-term investors should be well positioned to increase their investments in venture capital, and regulatory, supervisory or prudential requirements that may limit this need to be scrutinised.
However, it is also crucial that pension funds remain independent in their investment decisions and are not required to allocate in any specific investments or based on geographical restrictions. The fiduciary duty of pension funds is to provide retirement income and that should not be compromised for any other policy goal.
Auto-enrolment and PEPP
One of the key areas of focus in the SIU will be enhancing occupational and personal pensions to ensure people will have adequate retirement income. The introduction of auto-enrolment has proven effective in countries such as the UK and Lithuania, where pension coverage has expanded significantly. Ireland’s 2025 auto-enrolment scheme is expected to bring 800,000 new workers into retirement savings plans. These good examples should benefit other countries in the design of their pension system and the EU should use the economic governance framework of country specific recommendations to push member states to use auto-enrolment as a policy tool.
However, auto-enrolment alone is not sufficient; contribution adequacy, tax incentives, and financial literacy must be improved to ensure long-term pension sustainability.
The PEPP was introduced to create a standardised European pension product, but its adoption remains very limited, with presently just one service provider. This poor result is due to many factors, such as regulatory barriers and tax rules across member states. The review and reform of PEPP is needed to make it more available, attractive and competitive while ensuring that new regulations do not disrupt well-functioning national pension systems.
For the SIU to succeed, it is essential to increase citizens’ participation in capital markets. Financial literacy in the EU remains low and the SIU needs to include a financial literacy strategy to empower citizens with better knowledge of investment opportunities and risks.
Much discussion has been about a possible new EU savings product or labelling existing national products European. In my view, the SIU should advocate for good and investment-friendly savings accounts, modelled on successful examples in member states where savers receive good and simple tax treatment for their long-term investments.
Another issue under debate is where the investment should be made. The Swedish experience with their successful ISK system shows that for excellent results investments should not be restricted to any geographical area. It is also important to make investing simple to benefit from the opportunities markets provide.
Simplifying and harmonising EU financial regulations
The European financial regulatory framework has grown increasingly complex, often placing disproportionate compliance burdens on pension funds. The SIU ideas need to align with the European Commission’s regulatory simplification agenda, focusing on reducing unnecessary reporting requirements and streamlining supervisory rules.
The Digital Operational Resilience Act (DORA) is an example of how one-size-fits-all regulations can overburden pension funds, which often operate on a not-for-profit basis. The EU needs to adopt a more proportional approach that takes into account the unique characteristics of pension funds.
The SIU strategy should be a combination of EU-wide and national-level measures to drive its success. While legislative action at the EU level will focus on harmonisation, tax coordination, and investor protection, national governments will need to implement auto-enrolment schemes, financial education programmes, and pension reforms. And of course, taxes remain a member state’s competence.
Successful implementation of the SIU depends on cooperation between various stakeholders, EU institutions, member states, financial institutions, and civil society.
The SIU has to be a bold step towards a stronger, more resilient, and competitive European economy. By unlocking the full potential of capital markets, improving pension coverage, increasing pension savings and creating better investment opportunities, the SIU has the potential to bridge the gap between savings and economic growth.
Europe is lagging in competitiveness compared to the US and China and urgent strong measures are needed. We are faced with geopolitical instability, serious security concerns, geoeconomic challenges, demographics, and infrastructure decline. Pension funds cannot solve any of these issues alone but they can be part of the solutions if the EU moves forward with smart policy actions.
Matti Leppälä is secretary general of PensionsEurope
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