EU urges capitals to improve citizens' private pension options as pressure on state schemes grows

The European Union is urging its member states to boost private pension schemes as state pension funds come under strain from ageing populations.

As part of its push, the European Commission is proposing a two-pronged approach: giving citizens more opportunities to build an “adequate” retirement income, and mobilising up to €10 trillion in bank deposits across the bloc to support strategic EU priorities – in particular defence and security and the digital and green transitions.

“Supplementary pensions, such as occupational and personal pension schemes, help Europeans maintain their standard of living and strengthen their economic resilience,” European Commissioner for financial services Maria Luís Albuquerque told a press conference on Thursday.

However, she also stressed that these supplementary schemes are not intended to replace state-funded ones.

“They are still the backbone of the retirement systems across all member states, and they will remain so,” Albuquerque said.

Shifting the burden

State pensions in most EU countries operate on a pay-as-you-go basis, meaning current workers finance current retirees.

With the working-age population shrinking and non-standard employment on the rise, citizens in several member states lack guarantees of securing an adequate pension in the future, particularly women. The gender pension gap – the difference in average pension income between men and women – now stands at 24.5%.

“We want to encourage more people to save for their retirement and make it easier for them to do so,” Albuquerque said, referring to the Commission’s efforts to increase uptake of supplementary pension products.

The Commissioner argued that the role of occupational and personal pension schemes remains “too limited” and uneven across the bloc.

Only 20% of Europeans participate in occupational schemes, and just 18% hold a personal pension product, according to the European Insurance and Occupational Pensions Authority.

“The reality is that right now it is not easy for Europeans to understand what they will be entitled to when they retire,” Albuquerque said.

On top of the lack of clear information, the Commission has identified another barrier: the so-called “procrastination effect”.

At a briefing in Brussels, an EU official told reporters that people tend to delay tasks they do not understand – including pension planning. “That's what we also see with pensions and people," he said.

To address this, the Commission recommends that national governments provide online tools and tracking systems to help citizens understand projected benefits, how much they have saved, and the overall state of their pensions.

The Commission is also encouraging the introduction of auto-enrolment, meaning workers would be automatically enrolled in supplementary pension schemes but free to opt out.

“Auto-enrolment helps overcome the natural tendency to delay decisions about retirement, ensuring more people begin saving earlier and more consistently while fully respecting individual choice,” Albuquerque said.

Some member states already use this system, and the Commission says the evidence indicates that individuals tend to remain enrolled once included.

However, these measures are only recommendations, as the EU has limited competence in the matter.

“We can't do all from Brussels, but there are a lot of things that are in the power of the member states,” the same EU official said. “It is for the member states to implement the recommendations, and this has to be a collaborative process with them.”

The recommendations form part of a broader plan unveiled in March known as the Savings and Investments Union, which is designed to channel up to €10 trillion in bank deposits into strategic EU investments.