COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Enhancing the capacity of the EU supplementary pension sector to improve retirement income and supply long-term capital to the EU economy
Date: 2025-11-20
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: capital market, demography, economic conditions, economic growth, investment, labour market, pension scheme, population ageing, risk management, social policy

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.11.2025  COM(2025) 839 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Enhancing the capacity of the EU supplementary pension sector to improve retirement income and supply long-term capital to the EU economy       {SWD(2025) 367 final}  
 
 
1.  Introduction 

Europe’s  broad-based  social  and  economic  progress  over  the  past  few  decades  has  enabled 
people  across  Europe  to  live  longer  and  healthier  lives.  However,  population  ageing  and  a 
shrinking  working-age  population  are  increasing  pressure  on  public  budgets  and  pension 
systems. These changes require pension systems to adapt, in order to ensure that individuals 
can maintain a good standard of living in their retirement. 

Pensions are a cornerstone of social  protection, ensuring income security and dignity in old 
age. Principle 15 of the European Pillar of Social Rights (1) stipulates that ‘workers and the 
self-employed in retirement have the right to a pension commensurate to their contributions 
and ensuring an adequate income. Women and men shall have equal opportunities to acquire 
pension rights.’ 

Across the EU, demographic changes and shifting labour market dynamics are challenging the 
long-term  sustainability  and  adequacy  of  pension  systems.  These  include:  an  ageing 
population, low fertility  rates, new labour market realities  (from the spread of non-standard 
forms  of  work  to  automation-driven  restructuring  and  higher  job  turnover),  shrinking 
workforces and longer retirement periods. 

National pension systems provide old-age income through different types of pensions. Public 
pensions  are  typically  financed  from  current  revenue.  Supplementary  –  occupational  and 
personal – pension schemes are additional retirement savings typically funded by individuals 
and/or their employers to provide income beyond their public pension. 

Pension systems fulfil various social functions, in particular poverty prevention and income 
replacement. Poverty prevention, i.e. keeping older people out of poverty, including those with 
short careers or low earnings, is ensured by public pensions (including minimum pensions) and 
other social benefits. Income replacement, i.e. making sure that workers’ previous income level 
is  reasonably  protected  when  they  retire,  can  be  enhanced  by  a  combination  of  public  and 
supplementary pensions, as demonstrated by certain national systems. 

Occupational pensions are often based on collective bargaining and have been key to ensuring 
adequate  income  replacement  in  many  Member  States,  in  particular  those  where  they  are 
mandatory for most jobholders. The role of personal pensions as individual saving products 
contributing to retirement income is becoming ever more important, because of increased job 
flexibility and mobility (2). However, supplementary pensions have remained underdeveloped 
in many Member States. In light of the role that supplementary pensions may play in addressing 
the current challenges linked to demographic and labour market developments, efforts should 
be made to increase  coverage and transparency of supplementary pensions to the benefit of 
future pensioners and to increase net real returns on pension assets.  

1 Interinstitutional Proclamation on the European Pillar of Social Rights (2017/C 428/09). 
2 European Insurance and Occupational Pensions Authority, 'Unlocking the potential of pensions in Europe', Speech by Petra Hielkema at 
the Netspar anniversary conference, The Hague, 1 April 2025, https://www.eiopa.europa.eu/unlocking-potential-pensions-europe-2025-04-
01_en. 

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It is therefore urgent that Member States act now by strengthening supplementary pensions and 
take  a  comprehensive  approach  to  make  it  easier  for  people  to  access  such  pensions.  Such 
reforms will increase retirement income and help ensure the sustainability of pension systems 
for future generations. 

Recent high-level political statements and reports also underscored the urgent need to mobilise 
private  savings  for  long-term  investment.  These  include  the  March  2024  statement  of  the 
Eurogroup in inclusive format (3), the European Council conclusions of both April 2024 (4) and 
March 2025 (5), the European Parliament’s September 2025 competitiveness report (6) and the 
Letta  (7)  and  Draghi  (8)  reports.  The  long-term  nature  of  pension  liabilities  makes  the 
supplementary  sector  a  key  potential  supplier  of  long-term  capital  for  investment.  In  the 
Competitiveness Compass (9) and the Savings and Investments Union (SIU) strategy (10), the 
Commission committed to put forward measures to unlock that potential. 

The  SIU  strategy  aims  to  increase  wealth  and  boost  the  EU’s  economic  growth  and 
competitiveness,  giving  more  choice  to  savers  wishing  to  grow  their  household  wealth  and 
allowing businesses across Europe to grow. Supplementary pensions, in particular, can help 
achieve greater  financial security and stability  in  retirement,  complementing  the benefits  of 
statutory pensions, which in many cases will not be sufficient to maintain living standards. 

As well as ensuring adequate income after retirement, pension schemes that are funded and 
supported by a pool of assets can also support the EU’s economic growth and competitiveness, 
both directly by mobilising long-term savings for investments and indirectly by increasing the 
depth and liquidity of EU capital markets. 

With  this  package,  the  European  Commission  is  adopting  measures  to  deliver  on  those 
commitments. The package builds on and supplements the other SIU initiatives, including the 
financial literacy strategy (11) and the recommendation on savings and investment accounts (12) 
increase retail investor participation across the EU. Financial literacy is essential for boosting 
supplementary pensions, as it enables people, including new entrants to the labour market, to 

3 Council of the European Union, ‘Statement of the Eurogroup in inclusive format on the future of Capital Markets Union’, press release, 
11 March 2024, https://www.consilium.europa.eu/en/press/press-releases/2024/03/11/statement-of-the-eurogroup-in-inclusive-format-on-
the-future-of-capital-markets-union/. 
4 Council of the European Union, ‘EUCO Conclusions 17–18 April 2024’, https://www.consilium.europa.eu/media/m5jlwe0p/euco-
conclusions-20240417-18-en.pdf. 
5 Council of the European Union, ‘European Council Conclusions 20 March 2025’, 
https://www.consilium.europa.eu/media/viyhc2m4/20250320-european-council-conclusions-en.pdf. 
6 European Parliament, ‘Resolution of 10 September 2025 on investments and reforms for European competitiveness and the creation of a 
Capital Markets Union (facilitating the financing of investments and reforms) (TA-10-2025-0185)’ [online], 10 September 2025, 
https://www.europarl.europa.eu/doceo/document/TA-10-2025-0185_EN.html. 
7 Council of the European Union, ‘Much More Than a Market – report by Enrico Letta’, 
https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf. 
8 https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en#paragraph_47059. 
9 European Commission, A Competitiveness Compass for the EU (COM(2025) 30 final), Brussels, 29 January 2025, 
https://commission.europa.eu/document/download/10017eb1-4722-4333-add2-e0ed18105a34_en. 
10 European Commission, Communication from the Commission, Savings and Investments Union – A Strategy to Foster Citizens’ Wealth 
and Economic Competitiveness in the EU (COM(2025) 124 final), https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52025DC0124. 
11 European Commission (2025), Communication from the Commission to the European Parliament, the Council, the European Economic 
and Social Committee and the Committee of the Regions on a Financial Literacy Strategy for the EU, COM(2025) 681 final, Brussels, 
30 September 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52025DC0681. 
12 European Commission (2025), Commission Recommendation on Increasing the Availability of Savings and Investment Accounts with 
Simplified and Advantageous Tax Treatment, C(2025) 6800 final, Brussels, 30 September 2025, https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=PI_COM%3AC(2025)6800. 

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understand, plan and make informed decisions about saving and investing for their retirement. 
Savings  and  investment  accounts  can  be  a  valuable  means  of  developing  saving  habits  for 
different purposes, including for more short- to medium-term goals. These can carry over into 
more long-term investments such as supplementary pensions. 

The package launched alongside this communication contains a Commission recommendation 
to  Member  States  on  pension  tracking  systems,  pension  dashboards  and  auto-enrolment  an 
amending  directive  (IORP  II)  (13)  and  an  amending  regulation  (PEPP)  (14).  The  need  and 
rationale for this package of measures, as well as a summary of each, are outlined below. 

2.  Supplementary pension landscape in the EU 

The  EU  pension  landscape  is  very  diverse,  with  Member  States  at  different  stages  of 
development in their multilayered pension systems. Some rely mostly on statutory pensions for 
income replacement, while in others occupational or personal schemes play a large role. As a 
result,  tailored  policy  actions  must  be  taken  to  address  each  country’s  specific  gaps  and 
challenges and ensure integration into the country’s social and economic context. The present 
package has been drawn up following extensive consultation and on the basis of best practices 
identified in the Member States with more developed supplementary pension schemes. 

Although pension systems are primarily a matter of national competence and a core component 
of Member States’ social protection policy, the EU can contribute significantly to strengthening 
supplementary  pensions,  including  occupational  (sometimes  called  ‘second-pillar’)  and 
personal (‘third-pillar’) schemes. While pension systems fall largely under national law, EU 
frameworks such as the Institutions for Occupational Retirement Provision (IORP) II Directive 
(15), the Pan-European Personal Pension Product (PEPP) Regulation (16), the Directives on the 
safeguarding of supplementary pension rights(17) and on the acquisition and preservation of 
supplementary  pension  rights(18)  lay  down  important  common  standards  across  the  single 
market  and  facilitate  the  free  movement  of  workers.  Targeted  reforms  to  some  of  these 
frameworks  can  help  raise  participation  in  supplementary  pension  schemes,  improve 
investment  performance,  increase  trust  and  foster  more  integrated  and  efficient  pension 
markets across the EU while contributing to the sustainability and adequacy of pension systems 
and allowing for more effective investment of savings. 

13 Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive (EU) 2016/2341 of the 
European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement 
provision (IORPs) (COM/2025/XXX). 
14 Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) 2019/1238 of 
the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product (PEPP) (COM/2025/XXX). 
15 Directive (EU) 2016/2341 on the activities and supervision of institutions for occupational retirement provision (IORPs) (recast), 
Directive (EU) 2016/2341 – EN – EUR-Lex. 
16 Regulation (EU) 2019/1238 on a pan-European Personal Pension Product (PEPP), Regulation (EU) 2019/1238 – EN – EUR-Lex. 
17 Council Directive 98/49/EC on safeguarding the supplementary pension rights of employed and self-employed persons moving within the 
Community, Directive 98/49/EC – EN – EUR-Lex. 
18 Directive 2014/50/EU on minimum requirements for enhancing worker mobility between Member States by improving the acquisition 
and preservation of supplementary pension rights, Directive 2014/50/EU – EN – EUR-Lex. 

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3.  Current challenges 

The  main  challenges  and  issues  facing  Member  States  are  summarised  below,  with  further 
details available in the accompanying staff working document. 

If  not  addressed  appropriately,  the  challenges  described  below  –  coupled  with  economic 
uncertainty and other factors such as inflation – can threaten the financial well-being of future 
retirees. This would undermine individual financial security, reduce living standards in old age 
and  increase  reliance  on  social  assistance  and  public  budgets,  thereby  putting  additional 
pressure on Member State’s fiscal sustainability and public finances. 

Demographic challenges 

Demographic  changes  linked  to  ageing  populations  and  shrinking  workforces  challenge  the 
future  adequacy  and  sustainability  of  pension  systems  across  the  EU.  The  decline  in  the 
working-age population is exerting downward pressure on revenue from personal income taxes 
and social security  contributions. The shrinking workforce also means that future economic 
growth  will increasingly  depend  on productivity  gains  and investment  in  the EU’s strategic 
priorities, innovation and infrastructure projects. 

Conversely,  as  the population  grows  older,  expenditure on healthcare, long-term  care and 
pensions is forecast to rise, putting more pressure on public budgets. According to Eurostat, 
between  2024  and  2100,  the  share  of  the  population  that  is  of  working  age  is  expected  to 
decline, while older people will probably  account  for a  larger share of the total  population: 
those aged 65 and above will account for 30.5% of the EU’s population by 2070, compared 
with 21.6% in 2024 (19). These trends put a strain on public finances and are forecast to lead to 
lower  pension  replacement  rates  in  most  Member  States  (20),  rising  inequality  and 
intergenerational  imbalances. As  the  share  of  retirees  in  the  population  continues  to  grow, 
supplementary pensions can help maintain adequacy while easing budgetary pressures. 

Sustainability challenges 

Europe’s ageing population, coupled with low productivity growth, presents a major threat to 
pension sustainability. The old-age dependency ratio (21)  rose  from  29% in 2010 to  37% in 
2024 (22) and is forecast to exceed 59% by 2070. This means that each retiree will be supported 
by  fewer  than  two  people  of  working  age,  compared  to  nearly  3.5  working-age  people 
supporting each retiree today. Furthermore, the labour force is forecast to shrink by 14% (25 
million people) between 2024 and 2070 (23). This demographic shift threatens the sustainability 

19 Eurostat, ‘Population structure and ageing’, Statistics Explained, European Commission, https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=Population_structure_and_ageing. 
20 The pension replacement rate measures the percentage of an individual’s pre-retirement income that is maintained after retirement through 
pension benefits. 
21 The old-age dependency ratio measures the number of older people (typically aged 65 and over) relative to the working-age population, 
indicating the potential economic burden on workers to support retirees. It indicates how many older dependents there are for every 100 
working-age people. 
22 Eurostat, 'Old-age dependency growing across EU regions', Eurostat news article, 1 October 2025, European Commission, 
https://ec.europa.eu/eurostat/web/products-eurostat-news/w/ddn-20251001-2. 
23 European Commission, ‘2024 Ageing Report. Economic and Budgetary Projections for the EU Member States (2022-2070)’, Institutional 
Paper 279, 18 April 2024, https://economy-finance.ec.europa.eu/publications/2024-ageing-report-economic-and-budgetary-projections-eu-
member-states-2022-2070_en. 

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of public ‘pay-as-you-go’ (PAYG) schemes in particular (24), with fewer contributors relative 
to beneficiaries, making it harder to finance current and future pensions. Even accounting for 
higher labour market participation and longer working lives, future pension levels are forecast 
to  decrease.    This  puts  additional  pressure  on  supplementary  pensions  to  deliver  adequate 
income over longer retirements. 

Adequacy challenges 

According to the 2024 Pension Adequacy Report (25), ‘pension adequacy’ describes the extent 
to which pension systems ensure a retirement income preventing old-age poverty and maintain 
the income of men and women for the duration of their retirement, both currently and in the 
future(26). As highlighted in the European Commission’s 2024 Ageing Report, public pension 
income is projected to decline relative to wages, with the average benefit ratio (27) expected to 
fall by seven percentage points by 2070 compared to 2022 (28). Similarly, according to the 2024 
Pension Adequacy  Report  (29),  pension  replacement  rates  for  a  given  career  are  forecast  to 
decrease over the next four decades in 20 Member States. 

Although EU households are diligent savers, they save predominantly in liquid assets, such as 
bank  deposits,  rather  than  by  investing  in  long-term  financial  instruments  that  would  yield 
higher returns and could better support innovation, industrial adjustment and the diffusion of 
new  technologies.  Moreover,  many  supplementary  pension  schemes  are  guided  by  very 
conservative investment policies that limit the share of long-term assets, in particular equities, 
in pension funds’ portfolios despite the potential for higher revenue associated with such long-
term  investments.  In  addition,  pension  funds  and  life  insurers  active  in  offering  pension 
products often face tax barriers in the Single market. This has implications for the adequacy of 
the schemes. 

Furthermore,  low  contributions  and  high  costs  in  smaller  schemes  limit  the  adequacy  of 
supplementary pensions, particularly in defined-contribution schemes (30). Smaller funds often 
incur  higher  costs,  resulting  in  higher  fees  that  reduce  net  gains  for  savers.  Prolonged  low 
interest rates and recent market volatility have eroded returns for defined-benefit schemes and 
annuities.  Improvements  in  investment  performance,  participation  and  cost-efficiency  are 
needed to ensure adequacy of income in old age. 

24 Note that not all first pillar schemes are purely ‘PAYG’, and some combine elements of traditional statutory pensions with individual savings, 
where part of workers’ mandatory contributions is invested in financial markets rather than being used to pay current retirees. Within the EU, 
such schemes can be found in Latvia, Poland and Sweden. 
25 ‘2024 Pension Adequacy Report: Current and future income adequacy in old age in the EU’, joint report prepared by the Social Protection 
Committee (SPC) and the European Commission (DG EMPL), https://op.europa.eu/en/publication-detail/-/publication/c854e35f-2eb1-11ef-
a61b-01aa75ed71a1/language-en. 
26 This report shows that women are particularly affected by inadequate pensions. 
27 The benefit ratio measures the average pension benefit as a percentage of the average wage, indicating how pension income compares to 
earnings from work. 
28 European Commission, ‘2024 Ageing Report. Economic and Budgetary Projections for the EU Member States (2022-2070)’, Institutional 
Paper 279, 18 April 2024, https://economy-finance.ec.europa.eu/publications/2024-ageing-report-economic-and-budgetary-projections-eu-
member-states-2022-2070_en, pp. 3, 6 and 7. 
29 ‘2024 Pension Adequacy Report: Current and future income adequacy in old age in the EU’, joint report prepared by the Social Protection 
Committee (SPC) and the European Commission (DG EMPL), https://op.europa.eu/en/publication-detail/-/publication/c854e35f-2eb1-11ef-
a61b-01aa75ed71a1/language-en, Figure 37, p78 
30 Institute for Fiscal Studies, ‘Summary – The Pensions Review: Final Recommendations’, July 2025, 
https://ifs.org.uk/sites/default/files/2025-07/Summary%20The%%20Pensions%20Review_1.pdf. 

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Coverage gaps in supplementary pensions 

Public  pension  schemes  form  the  foundation  of  pension  systems  in  all  Member  States  and 
provide (almost) universal coverage. Tackling challenges arising from demographic and labour 
market  transformations  requires  a  broad  policy  mix,  including  strengthening  supplementary 
pensions to provide additional income in old age for retirees. Another key challenge to address 
is the 24.5% gender pension gap.31 

Despite this, EIOPA’s Consumer Trend Report 2024 (32) shows that only 20% of Europeans 
participate in an occupational pension scheme, and just 18% own a personal pension product. 
Coverage  is  particularly  low  among  younger  workers,  women,  part-time  and  lower-paid 
employees and the self-employed. As non-standard employment becomes more common, there 
is  a  risk  that  gaps  in  access  will  exacerbate  inequalities  and  increase  reliance  on  statutory 
pensions.  The  supplementary  pensions  market,  which  is  underdeveloped  in  most  Member 
States, therefore requires urgent expansion to ensure better pension adequacy and coverage for 
future retirees. 

Fragmentation and lack of scale in supplementary pension schemes and interpretation of 
the prudent person principle 

The  EU  supplementary  pension  sector  is  relatively  small  compared  to  other  advanced 
economies, the United States in particular, with notable exceptions in some Member States. 
Furthermore,  approximately  80%  of  EU  institutions  for  occupational  retirement  provision 
(IORPs) have less than EUR 1 billion in assets under management (AuM), while one third of 
them  have  less  than  EUR 25  million  (33).  Many  of  these  schemes  lack  the  scale  to  invest 
efficiently  or  to  diversify  risk,  prompting  some  supervisors  to  encourage  consolidation  into 
larger master trusts or industry-wide funds (34). 

In addition, supplementary pension provision in the EU is highly fragmented across providers, 
schemes and products – both within Member States, where access and coverage vary according 
to employment type, and across borders, where differing national regulations and tax regimes 
hinder  portability  and  comparability.  Occupational  pension  schemes,  which  are  well 
established in some Member States, are often tied to individual employers or industrial sectors.  

Large, scaled-up pension funds can achieve significant cost-efficiencies and better investment 
outcomes (35). Research shows that an increase in assets under management is associated with 
a reduction in annual costs (36)(37). This suggests that consolidation among small and medium-

31 Eurostat, gender gap by age group, https://ec.europa.eu/eurostat/databrowser/view/ilc_pnp13$defaultview/default/table?lang=en 
32 European Insurance and Occupational Pensions Authority, ‘Consumer Trends Report 2024’, 15 January 2025, 
https://www.eiopa.europa.eu/publications/consumer-trends-report-2024_en. 
33 European Insurance and Occupational Pensions Authority, ‘IORPs in Focus: IORPs Report 2024’, EIOPA-BoS-25/016, 11 February 2025, 
https://www.eiopa.europa.eu/document/download/4de6b580-521d-4ad0-af83-2ecf133abdf4_en. 
34 European Insurance and Occupational Pensions Authority, ‘EIOPA market report on occupational pension funds shows more consolidation 
and rebound in assets under management’, 11 February 2025, https://www.eiopa.europa.eu/eiopa-market-report-occupational-pension-funds-
shows-more-consolidation-and-rebound-assets-under-2025-02-11_en. 
35 OECD, OECD Pensions Outlook 2018, OECD Publishing, Paris, 2018, pp. 89-90, 2018, https://doi.org/10.1787/pens_outlook-2018-en. 
36 De Nederlandsche Bank, ‘Scale economies in pension fund investments: A dissection of investment costs across asset classes’, Working 
paper No 474, 3 June 2015, https://www.dnb.nl/publicaties/publicaties-onderzoek/working-paper-2015/474-scale-economies-in-pension-
fund-investments-a-dissection-of-investment-costs-across-asset-classes/. 
37 EIOPA Statistics Annex on IORPS data, EIOPA-BoS 2025-420. 

6 

 
 
 
sized funds could be one way to decrease cost (38), particularly administrative and management 
fees. Without scale, many funds suffer from inefficiencies which reduce net returns (39). 

Scale is critical for lowering costs for  future pensioners, obtaining higher returns (including 
those  generated  by  investing  in  less  liquid  asset  classes),  improving  diversification  and 
governance  and  enabling  pension  funds  to  contribute  more  effectively  to  productive 
investment, including Europe’s strategic investment priorities. 

In  addition,  a  conservative  interpretation  of  the  prudent  person  principle  by  competent 
authorities or pension providers has often restricted the ability of larger-scale pension schemes 
to  diversify  investments  and  to  allocate  them  to  equities,  which  over  the  long  term  have  a 
proven positive return potential. 

4.  Policy measures 

The  envisaged  measures  aim  mainly  to  increase  the  financial  security  of  people  after 
retirement, while contributing to the long-term sustainability and resilience of pension systems, 
in  light  of  pressing  demographic  challenges  as  well  as  the  persistent  gender  pension  and 
coverage gaps.40 Another objective of the initiative is to bolster capital market development 
and investment in EU growth and innovation, an objective that is also being addressed through 
several other actions under the SIU. As pension policies fall primarily within the competence 
of the Member States, their effective implementation at national level will be critical to achieve 
the desired outcomes. 

To  support  these  objectives,  the  Commission  is  proposing  a  set  of  initiatives,  including  a 
recommendation  on  pension  tracking  systems,  pension  dashboards  and  auto-enrolment,  and 
two legislative proposals covering areas already subject to EU financial market regulation – an 
amending directive (IORP II) and an amending regulation (PEPP). They aim to strengthen both 
the demand and the supply side of the supplementary pension sector. 

Measures on the demand side address the low take-up of voluntary pension savings due to a 
behavioural bias causing parts of the population to postpone decisions on retirement savings 
(41)(42)(43).  The  lack  of  awareness  and  financial  literacy  that  affects  how  people  plan  for 
retirement and the lack of attractive pension products that discourages part of the population 
from saving in such products result in low participation rates. 

38 De Nederlandsche Bank, ‘Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs’, 
Working paper No 376, Jacob A. Bikker, 18 April 2013, https://www.dnb.nl/en/publications/research-publications/working-paper-2013/376-
is-there-an-optimal-pension-fund-size-a-scale-economy-analysis-of-administrative-and-investment-costs/. 
39 De Nederlandsche Bank, ‘X-efficiency and economies of scale in pension fund administration and investment’, Working paper No 547, 
Gosse A. G. Alserda, Jaap A. Bikker and Fieke S. G. van der Lecq, 23 February 2017, https://www.dnb.nl/en/publications/research-
publications/working-paper-2017/x-efficiency-and-economies-of-scale-in-pension-fund-administration-and-investment. 
40 The gender pension gap measures the difference in average gross pensions between men and women. The gender pensions coverage gap is 
defined as the difference between the proportions of older men and women receiving any pension benefit. 
41 Brigitte C. Madrian and Dennis F. Shea, ‘The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior’, Quarterly 
Journal of Economics, Vol. 116, No 4 (2001), pp. 1149-1187. 
42 Gabriel D. Carroll, James J. Choi, David Laibson, Brigitte C. Madrian and Andrew Metrick, ‘Optimal Defaults and Active Decisions’, 
Quarterly Journal of Economics, Vol. 124, No 4 (2009), pp. 1639-1674. 
43 R. H. Thaler and S. Benartzi, ‘Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving’, Journal of Political 
Economy, Vol. 112, No S1, Papers in Honor of Sherwin Rosen: A Supplement to Volume 112 (2004), pp. 164-187. 

7 

 
 
 
 
Measures on the supply side seek to increase the availability of cost-efficient pension products 
that aim to deliver higher returns. This requires both scaling-up strategies in the supplementary 
pension sector and greater competition between providers. 

Lower costs and higher  returns  can make it more attractive  for households to  participate in 
supplementary pension schemes. This increased demand can then generate a positive feedback 
loop as pension providers grow and can reduce costs due to economies of scale. This requires 
two  things:  providers  must  accept  clear  fiduciary  (duty  of  care)  obligations,  and  their  risk-
taking and profit generation must be monitored effectively, so that households can be confident 
that their retirement savings are being managed properly. 

Pension tracking systems 

The  low  participation  in  supplementary  pensions  is  due  partly  to  the  fact  that  people  have 
limited awareness  and information  about  their future pension. In  an EIOPA survey, 25%  of 
respondents did not know where to access information about their entitlements (44), and 19% 
said that they had ‘not thought about’ personal pensions (45). 

Pension tracking systems can offer individuals a consolidated overview of their pension rights 
and  projected  benefits  across  different  pension  schemes  and  providers.  By  increasing 
transparency and pension awareness, these systems encourage informed savings and retirement 
decisions. 

However,  existing  pension  information  services  in  most  Member  States  remain  fragmented 
across  different  pension  pillars  and  offer  incomplete  coverage,  in  particular  on  entitlements 
from supplementary pension schemes. Drawing on positive experience gained at national level, 
EIOPA has developed a set of good practices (46) for national tracking systems. In parallel, the 
Commission supports the roll-out of a European tracking service (ETS) on pensions that can 
link existing national tracking systems to provide mobile workers with an overview of their 
pension entitlements across the EU (47). 

The Commission therefore puts forward, in its recommendation that Member States set up or 
expand  national  pension  tracking  systems,  covering  pension  entitlements  from  all  pension 
schemes, at no cost to individuals. It further recommends that their national tracking systems 
can support future connectivity with the ETS. 

Pension dashboards 

Pension  dashboards  provide  policymakers  and  other  key  stakeholders  with  an  overview  of 
national  pension  systems  (48),  consolidating  key  indicators  such  as  coverage,  contributions, 

44 European Insurance and Occupational Pensions Authority, ‘Presentation – Eurobarometer: Consumer trends 2024 (IPSOS)’, 
https://www.eiopa.europa.eu/document/download/dd67f6de-f4ed-4bde-b221-8b1ec075b520_en?filename=Presentation%20-
%20Eurobarometer.%20Consumer%20trends%202024%20-%20IPSOS.pdf. 
45 European Insurance and Occupational Pensions Authority, ‘Eurobarometer 2024: Consumer trends in insurance and pension services – 
Private pension products section’, https://www.eiopa.europa.eu/tools-and-data/eurobarometer-2024-consumer-trends-insurance-and-pension-
services_en#private-pension-products. 
46 European Insurance and Occupational Pensions Authority (EIOPA) (n.d.), ‘Technical advice on a pensions dashboard, EIOPA’, 
https://www.eiopa.europa.eu/publications/technical-advice-pensions-dashboard_en. 
47 Two Member States (Belgium and France) are already connected, others are in the pipeline. 
48 European Insurance and Occupational Pensions Authority (EIOPA) (n.d.), ‘Technical Advice on a Pensions Dashboard, EIOPA’, 
https://www.eiopa.europa.eu/publications/technical-advice-pensions-dashboard_en. 

8 

 
 
 
retirement  income  and  fiscal  costs.  This  supports  evidence-based  policy  design,  helping  to 
build public trust in pension systems and to guide reforms. 

The Commission therefore puts forward in its recommendation that Member States develop or 
adapt national dashboards, using existing data where available, and expand coverage over time, 
benefitting  from  synergies  with  pension  tracking  systems.  Once  implemented,  national 
dashboards could feed into an EU pension dashboard to be built in a time-horizon of about five 
years.  This  EU  dashboard  would  promote  cross-country  comparisons,  mutual  learning  and 
better-informed reform strategies. 

Auto-enrolment 

‘Auto-enrolment’  is  when  employees  are  automatically  included  in  supplementary  pension 
schemes, with the possibility of opting out. The widespread use of this tool can significantly 
boost participation rates in supplementary pensions, as evidence shows that individuals, once 
enrolled,  tend  to  remain  in  the  schemes  (49).  Experience  gained  within  and  outside  the  EU 
shows that well-designed auto-enrolment schemes – with affordable contributions, low fees, 
efficient administration and flexible opt-out options – help workers, particularly younger and 
lower-income earners, build adequate retirement savings over time. These good practices (50) 
support long-term pension system adequacy and sustainability by making auto-enrolment an 
effective tool to mitigate the risk of future pension gaps. 

The Commission therefore puts forward in its recommendation that Member States without 
mandatory  occupational  pension  schemes  adopt  auto-enrolment  by  following  existing  good 
practices  and  lessons  learnt  to  broaden  coverage  and  improve  pension  adequacy  and 
sustainability. With its recommendation, the Commission encourages Member States to enable 
and incentivise employers or professional associations to use auto-enrolment, and to consider 
whether an obligation for employers to enrol their workers would be suitable for their national 
context.  

IORP II Directive 

The  review  of  the  IORP  II  Directive  (51)  aims  to  build  a  stronger  and  more  efficient 
occupational pension landscape in the EU. The Directive sets out key common standards to 
ensure sound management and safeguard the interests of scheme members, while respecting 
national social and labour law on the organisation of pension systems and without impinging 
on the role of social partners. However, many schemes remain too small and fragmented to 
derive the full benefits of diversified investments and deliver optimal outcomes for savers. 

49 Department for Work & Pensions, ‘Workplace pension participation and savings trends of eligible employees, 2009 to 2024’, updated 
5 August 2025, https://www.gov.uk/government/statistics/workplace-pension-participation-and-savings-trends-2009-to-2024/workplace-
pension-participation-and-savings-trends-of-eligible-employees-2009-to-2024; Inland Revenue (New Zealand), ‘Statistics on KiwiSaver 
opt-out rates’, https://www.ird.govt.nz/about-us/tax-statistics/kiwisaver/joining/kiwisaver-opt-out-rates; Central Statistics Office (Ireland), 
‘Awareness of Auto Enrolment, Pension Coverage 2024’ (statistical release, 19 December 2024), 
https://www.cso.ie/en/releasesandpublications/ep/p-pens/pensioncoverage2024/awarenessofautoenrolment/. 
50 European Commission (2021), ‘Best practices and performance of auto-enrolment mechanisms for pension savings’, 
https://op.europa.eu/en/publication-detail/-/publication/6f40c27b-5193-11ec-91ac-01aa75ed71a1/language-en. 
51 Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of 
institutions for occupational retirement provision (IORPs). 

9 

 
 
 
To unlock the potential of occupational pensions, the Commission proposes to modernise the 
framework  in  order  better  to  support  efficiency  and  scale.  This  includes:  (i)  increasing 
supervisory  focus  on  costs,  returns  and  scale,  as  one  of  the  triggers  for  lowering  costs  and 
increasing  returns;  (ii)  increasing  transparency  on  underperformance;  and  (iii)  removing 
barriers to market-driven consolidation or other ways of promoting economies of scale. 

The competent authorities will play an important role in fostering more robust and professional 
management of pension  assets  and creating trust  in  supplementary pension schemes. At the 
same time, the costs, fees and returns of pension funds will be made more transparent. 

A more efficient occupational pension sector should help ensure that savers benefit from higher 
returns, enabling long-term capital to be mobilised more effectively to support EU growth. 

Although the IORP II Directive sets out strong standards for sound management and member 
protection in occupational pensions, it does not cover the entire landscape of supplementary 
pension providers and schemes, some of which remain governed solely by national law. Many 
of  these  institutions  also  operate  on  a  limited  scale,  which  restricts  their  ability  to  achieve 
diversification,  realise  economies  of  scale  and  deliver  strong  returns  to  members  and 
beneficiaries. 

To help address these challenges and build on the positive experience gained in some Member 
States, all Member States are encouraged to make broader use of the IORP II framework. This 
includes  institutions  currently  outside  the  scope  of  the  framework.  The  Directive  offers  a 
flexible structure that can be adapted to national systems and the particular characteristics of 
their institutional set-up. Broader alignment would make pension institutions stronger and more 
efficient, enabling them to pool resources, diversify investments and reduce participant costs. 
Greater scale would also support market-driven consolidation where appropriate, promoting 
stronger governance, professional management and more transparent supervision. 

By making fuller use of the IORP II framework, Member States could make supplementary 
pensions  more  resilient  and  efficient,  helping  members  and  beneficiaries  achieve  better 
outcomes. At the same time, they could mobilise long-term savings more effectively to finance 
the EU’s green, digital and strategic inclusive growth priorities. Broader adoption of IORPs is 
not just a technical choice. It is a strategic opportunity to modernise Europe’s supplementary 
pension systems, build trust and maximise the contribution of long-term savings to the EU’s 
economic  future,  while  fully  respecting  national  competence  and  the  role  and  autonomy  of 
social partners. 

PEPP Regulation 

The  review  of  the  PEPP  Regulation  (52)  seeks  to  make  the  pan-European  Personal  Pension 
Product (PEPP) a more attractive and accessible option for both savers and providers. Despite 
its sound design principles, aimed at transparency, investor protection and digital accessibility, 
uptake has been very limited. 

52 Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product 
(PEPP). 

10 

 
 
 
Experience has shown that the strict 1% fee cap and the requirement for national subaccounts 
under the current PEPP framework have not led to the intended commercial success. Rather 
than  resulting  in  widespread  uptake,  the  requirements  have  discouraged  providers  from 
offering PEPPs and restricted saver choices. 

The Commission’s proposal therefore includes alternative ways to ensure that PEPPs deliver 
value  for  money  while  maintaining  a  robust  protective  framework  for  retail  investors.  By 
combining greater flexibility for providers with clear standards on transparency, cost disclosure 
and  investor  protection,  and  by  making  PEPPs  suited  to  workplace  arrangements  or  auto-
enrolment,  the  revised  framework  aims  to  create  a  more  dynamic  market  where  savers  can 
access affordable, high-quality pension solutions that meet their individual needs. 

The changes will reduce barriers to provision and distribution, broadening savers’ choice and 
ensuring  consistent  favourable  tax  treatment  between  PEPP  and  other  personal  pension 
products. The PEPP will be suitable for various types of providers, including asset managers 
and insurers, and adaptable to different investor preferences. Changes to the PEPP Regulation 
will therefore streamline procedures and promote competition between the basic PEPP and the 
PEPP with options. 

This legislative proposal is an opportunity to turn the PEPP into a genuinely European long-
term savings product – one which reflects investors’ preferences (simple or with options) and 
is transparent and cost-effective for investors and sufficiently flexible to attract providers. 

5.  Prudent person principle 

The prudent person rule currently governs how IORPs and PEPP providers should invest and 
manage their asset portfolios. However, the rule has been interpreted and implemented very 
differently by the Member States. This has often constrained pension schemes in their ability 
to  diversify  investments  and  to  allocate  them  to  equities.  In  line  with  the  SIU  strategy,  the 
proposals amending IORP II and PEPP replace the prudent person rule by a prudent person 
principle, clarifying that pension providers should have freedom to invest in any type of assets, 
provided that they can properly identify, measure, monitor, manage and report the associated 
risks. The SIU strategy aims to promote increasing investment in both private and listed equity 
in order to provide new sources of financing for the EU economy. As institutional investors 
with a long-term horizon, pension funds are well placed to provide some of this financing, with 
benefits arising for their members as a result both of increased returns on investment and of the 
broader positive economic impact. 

With this section, the Commission wants to (i) outline how it sees the prudent person principle 
as a key fiduciary duty, (ii) summarise what the EU rules require and (iii) provide non-binding 
guidance  to  support  the  effective  and  consistent  implementation  of  the  prudent  person 
principle.  It  builds  on  the  feedback  received  by  the  Commission  as  part  of  the  targeted 
consultation on supplementary pensions. It is intended to assist competent authorities in their 
supervisory activities and to provide clarity to institutions. Although this non-binding guidance 
is rooted in existing legislation, it is intended to have broader relevance, guiding all pension 

11 

 
 
 
funds,  including  those  beyond  the  formal  scope  of  the  IORP  II  Directive  and  the  PEPP 
Regulation. This reflects the view that the principles of prudence and sound governance are 
fundamental to the entire pension landscape, not confined to specific legal frameworks. 

What is the prudent person principle? 

The  prudent  person  principle  is  a  flexible  but  demanding  fiduciary  standard.  It  does  not 
prescribe  a  specific  asset  mix.  Instead,  it  highlights  responsibilities  and  duties  of  pension 
providers to act in the long-term interest of the beneficiaries of pension schemes, accounting 
for both returns and risks inherent in the pension assets. The principle lays down an investment 
decision-making framework for pension providers based on diversification, risk management 
and  suitability.  Equity  investments,  including  listed  and  private  equity,  are  not  inherently 
imprudent.  On  the  contrary,  they  can  be  an  essential  component  of  a  well-diversified,  long 
term-oriented  pension  portfolio  provided  that  their  risks  are  clearly  understood,  and  their 
market value can be reliably estimated and aligned with the objectives of the scheme. What 
matters is whether managers can identify, measure and control the associated risks and ensure 
that the investments fit in with the overall risk tolerance and liquidity needs of the scheme. 
Managers should also avoid conflicts of interest or excessive concentration, particularly in the 
sponsoring company or its sector. 

Although  the  prudent  person  principle  applies  to  both  defined-benefit  (DB)  and  defined-
contribution (DC) schemes, there are slight differences in how it is applied. For DB schemes, 
the focus is on matching assets and liabilities (liability-driven investing), making prudent use 
of equities and alternative assets to close funding gaps. For DC plans, where the investment 
risks are born by the beneficiaries, the focus is on prudent selection and allocation and ongoing 
monitoring  of  investment  options.  Default  DC  funds,  such  as  target-date  funds,  should  be 
designed both to match the typical saver’s risk profile and to offer diversified exposure to a 
broad range of asset classes. In mixed schemes, in light of the ongoing shift from DB to DC 
plans, the prudent person principle ensures that both the DB and DC components are managed 
prudently,  balancing  risk,  return  and  diversification,  and  that  the  scheme  as  a  whole  both 
protects members’ interests and allows for long-term growth. 

What do EU rules provide in relation to the prudent person principle? 

As set out in Article 19 of the IORP II Directive and Article 41 of the PEPP Regulation, the 
prudent  person  principle  means  that  assets  must  serve  the  long-term  interests  of  savers, 
balancing return with security, quality and liquidity. Portfolios should be adequately diversified 
to avoid excessive reliance on any single asset, issuer, region or sector. Investments in assets 
outside regulated markets, such as infrastructure, private equity or venture capital, are allowed 
but must remain at prudent levels. Those responsible for managing the schemes must possess 
the necessary expertise and maintain robust risk management systems.  

Currently,  many  Member  States  prohibit  or  restrict  investment  in  certain  assets.  This  may 
prevent  members  and  beneficiaries  from  accessing  potentially  higher  returns  or  more 
diversified investment strategies. Smaller providers, although generally more conservative in 
their  investment  approach,  are  more  exposed  to  deliver  lower  returns  to  members  and 

12 

 
 
beneficiaries, as their size and limited risk absorption capacity and expertise restrict their ability 
to  explore  alternative,  higher-yielding  assets.  Encouraging  pension  providers  to  consider  a 
wider  range  of  investment  opportunities,  where  prudently  feasible,  can  help  unlock  the 
advantages of scale, improved diversification and increased risk-adjusted returns. Over time, 
this can also stimulate fund growth, enabling more members and beneficiaries to benefit from 
the  efficiencies  and  investment  possibilities  associated  with  larger,  well-managed  pension 
schemes. 

Guidance on the implementation of the prudent person principle. 

Although not all pension providers, in particular smaller providers that may lack the relevant 
expertise  or  scale,  may  be  able  to  afford  to  invest  in  alternative  assets,  it  is  nonetheless 
important that all pension providers benefit from diversification and consider including equity 
in their portfolios. Larger funds, with sufficient scale and risk-absorption capacity, can access 
a  wider  range  of  investment  opportunities.  Larger  funds,  with  sufficient  scale  and  risk 
absorption capacity should also consider private equity, venture capital and growth equity funds 
as part of a well-diversified investment strategy. Such larger providers can more likely obtain 
attractive terms that smaller funds cannot easily achieve. If such providers failed to consider 
suitable equity or alternative assets capable of increasing returns within acceptable risk limits, 
they would be neglecting their duty to ensure the profitability of investments and the need to 
broadly diversify assets. 

It is a good practice to document compliance with the prudent person principle in the statement 
of investment policy principles for schemes falling within the scope of the IORP II Directive 
or the PEPP Regulation, or in an equivalent document governing schemes outside the scope of 
Union  legislation.  Where  such  practice  is  followed,  providers  should  consider  indicating 
investment objectives, diversification targets and exposure limits, while aligning their portfolio 
with the liabilities and demographics of the plan. The documents would also be expected to set 
out oversight, monitoring and reporting mechanisms and detailed rules on managing liquidity, 
quality  and  conflicts  of  interest.  National  competent  authorities  have  an  important  role  in 
overseeing  whether  providers’  investments  align  with  such  statements  of  investment  policy 
principles or equivalent documents. 

6.  Conclusion 

Strengthening supplementary pension systems is key to addressing the mounting pressure from 
demographic shifts and economic and labour trends. However, although these challenges are 
significant,  they  also  present  major  opportunities.  By  making  changes  to  supplementary 
pension frameworks, at both EU and Member State level, there is great potential to increase 
coverage  and  improve  returns.  Such  carefully  designed  reforms  would  ensure  that  people 
receive  adequate  income  during  retirement  and  alleviate  the  pressure  on  statutory  pension 
schemes. This,  in  turn,  would  increase  investment  in  the  EU  economy.  That  approach  will 
secure  a  more  stable  and  prosperous  future  for  everyone,  irrespective  of  their  age,  and 
contribute to intergenerational fairness. 

13 

 
 
 
The Commission will closely monitor the implementation of its recommendations, including 
through the European Semester, and promote the exchange of best practices between Member 
States. It is also ready to work with the co-legislators to achieve swift political agreement on 
the legislative reforms. 

14