Last week, the European Commission presented its long-awaited Savings and Investments Union (SIU) strategy to whip the European Union into better shape by deepening the bloc’s capital markets. Key aspects of the strategy are emphases on funded pensions and joint efforts at the EU and national levels to achieve the goals identified by the Commission.
EU competence is limited in areas such as taxation and pensions, so the bloc cannot force individual countries to adopt policies like automatic enrolment, for example, which is a practice the Commission has said it would like to see adopted more widely.
Welcoming the emphasis on funded pensions in the Commission’s strategy document, PensionsEurope, the Brussels-based pension fund industry group, highlighted as “highly relevant” a proposal to integrate SIU measures into country-specific recommendations within the European Semester.
“As pensions are a national competence, the European Commission should make full use of the existing governance framework to encourage and support member states in implementing meaningful reforms,” it said.
Established in 2010, the European Semester is an annual cycle of economic and fiscal policy coordination within the EU that can influence budgetary and economic policy decisions of member states.
“To ensure the success of the Savings and Investments Union, and based on best practices identified, the Commission intends to guide member states and calls on them to take action”
European Commission
The Commission proposes recommendations under the European Semester framework, but they have to be adopted by the Council, the member states’ body.
According to Niko Väänänen, special adviser at the Finnish Centre for Pensions, pension-related recommendations issued as part of the European Semester process have so far tended to focus on state pension systems rather than supplementary pensions.
Analysing 438 pension reform recommendations issued from 2011 to 2023, Väänänen and Jan Helmdag, researcher at the Swedish Institute for Social Research at Stockholm University, found that the recommendations focused on financial sustainability of pensions, while adequacy and modernisation were less frequently addressed.
Of 261 recommendations classified as specific, 19 were about strengthening occupational pensions and nine on strengthening private pensions, compared with 70 and 51 about increasing the retirement age and preventing early exits, respectively.
According to the Commission, the SIU “recognises the crucial role of member states in driving progress”.
“To ensure the success of the Savings and Investments Union, and based on best practices identified, the Commission intends to guide member states and calls on them to take action,” it said.
The Commission said that, by Q4 this year, it would issue recommendations on the use of and best practices for auto-enrolment, pensions tracking systems and pension dashboards and recommend the development of such tools. It has a similar timeline for reviews of the IORP II Directive and the framework for the Pan-European Personal Pension Product.
‘More targeted’
EFAMA, the European asset management lobby group, is encouraged by the EC’s SIU strategy communication, saying it was “more targeted than previous CMU Action Plans and laser-focused on the key drivers of success, chief of which are the development of supplementary pensions and the need to achieve greater retail participation in capital markets”.
“Critically, the strategy also stresses the shared responsibility of member states in delivering on these objectives,” said Vincent Ingham, EFAMA’s director of regulatory policy.
Getting member states to make changes in certain areas, such as taxation, will be difficult, however, according to Tanguy van de Werve, EFAMA’s director general.
Welcoming the EC’s emphasis on the importance of tax incentives, he said: “The challenge now is how to motivate member states to offer these incentives.”
“Unfortunately, the ongoing stalemate regarding DEBRA [an allowance to grant the same tax treatment to equity as debt, proposed by the Commission in 2022] does not inspire confidence. This situation needs to change,” van de Werve said.
DEBRA has not been taken forward in the Council and member states have not taken comparable initiatives at national level.
“This maintains the debt bias in a context where the Savings and Investments Union seeks to incentivise more equity investment,” noted the Commission in last week’s strategy document.
In Denmark, Tom Vile Jensen, deputy director of the pensions lobby IPD, said the European Commission was sending “a good new signal” about the need for the EU to get better at creating the financial and tax incentives to take an investment risk.
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