Europe’s pension systems are facing a pension crisis as the population ages and public finances tighten. Governments across the EU agree that reforms are necessary. The European Commission is now pushing to make supplementary pensions stronger, aiming to help Europeans maintain their standard of living after retirement.
Across the EU, pension systems have long rested on a public, pay-as-you-go foundation: today’s workers finance today’s retirees. That model worked in a younger Europe.
It works less comfortably in a continent where life expectancy rises steadily while birth rates remain low. The old-age dependency ratio is climbing, and with it the financial strain on public schemes.
As a result, the Commission has concluded that public pensions alone will increasingly struggle to ensure adequate retirement income. Supplementary pensions – occupational schemes agreed between employers and employees, as well as personal pension products – must play a stronger role if Europeans are to maintain their living standards after retirement.
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Ageing Europe, shrinking workforce
In some member states, the worker-to-retiree imbalance is already visible and has forced difficult debates about retirement ages, contribution rates and benefit levels.
The incoming government in the Netherlands, for example, recently announced plans that would raise the retirement age to 70 years and 9 months by 2060.
In France, however, a 2023 pension reform, which raised the statutory retirement age from 62 to 64, sparked wide social backlash.
When it comes to funds, currently, around one fifth of Europeans participate in a mandatory supplementary pension scheme; 18 per cent have a personal pension savings product.
This gap is one of the reasons why Brussels has come forward with new recommendations and legislative proposals.
Reforming the rules
Aware of these national sensitivities, Brussels is not planning to replace national public systems, but to reinforce them with additional pillars.
A more resilient, multi-pillar structure – combining public, occupational and personal pensions – would spread risk and reduce pressure on state budgets.
“Ensuring adequate retirement income for EU citizens requires action today”, Commissioner Maria Luís Albuquerque argued.
The aim is to make supplementary pensions more accessible, more transparent and more attractive – both for savers and for providers.
Ensuring adequate retirement income for EU citizens requires action today. – Commissioner Maria Luís Albuquerque argued.
At the heart of the Commission’s initiative are proposed revisions to the rules governing occupational pension funds, known as Institutions for Occupational Retirement Provision (IORPs), and to the Pan-European Personal Pension Product (PEPP).
The occupational pensions directive, last updated in 2016, sets common standards for governance, risk management and cross-border procedures.
Brussels now wants to streamline certain requirements and clarify investment rules, particularly the “prudent person principle” that guides how pension funds invest.
The intention is to allow funds to pursue more diversified, potentially higher-yielding long-term investments – including in equities – without compromising security.
The Commission also hopes to revitalise the PEPP, launched as a portable pension product for Europe’s mobile workforce. So far, uptake has been limited. Regulatory complexity, little tax incentives and competition from established national products have dampened enthusiasm.
The proposed changes aim to simplify the framework and make PEPPs more usable for citizens who move across borders.
Greater transparency and automatic enrolment
Brussels also wants to see employees automatically enrolled in a supplementary pension scheme, while retaining the possibility to opt out. In the Netherlands, employees already automatically accrue pension rights through their employer, although there is no opt-out system.
To increase transparency for citizens, member states are encouraged to improve their pension tracking systems. Citizens should receive a clear and comprehensive overview of their pension rights and expected benefits across all schemes combined.
Here again, the Netherlands is often cited as a frontrunner: every year, citizens receive a uniform pension statement summarising their accrued rights.
What the insurance industry wants
Insurers, key providers of pension products in many member states, broadly welcome the Commission’s renewed focus on supplementary pensions. But also argue that more fundamental changes are needed.
Insurance Europe, the sector’s Brussels-based umbrella organisation, has long called for a more supportive regulatory and tax framework to unlock long-term savings.
It has urged policymakers to remove obstacles that discourage cross-border provision of pension products and to ensure that EU rules do not impose disproportionate capital requirements on long-term retirement savings.
The industry also wants a stronger push for automatic enrolment across member states. Making enrolment the default, insurers say, would significantly increase participation.
Insurers also stress that the PEPP can only succeed if member states align tax treatment with existing national pension products. Without comparable tax incentives, they warn, a pan-European product will struggle to compete. Regardless of how streamlined its regulatory framework becomes.
What’s next?
The Commission’s proposals now enter the EU’s legislative machinery. The European Parliament and member states in the Council will amend and negotiate the proposal; a process that could stretch well into next year.
