EU Pension Policy

Defined Benefit and Defined Contribution Schemes

Occupational pension plans can be either Defined Benefit (DB) or Defined Contribution (DC), depending on how pension benefits are calculated and who bears the risks. In DC plans, employees bear all the risk, while in traditional DB plans sponsoring employer(s) assume all the risks. Between those two extremes, many hybrid arrangements include different forms of risk sharing between employers and employees, and even some guarantees.

Over recent decades, several European countries have experienced a shift from traditional DB pension plans to DC or hybrid alternatives. This transition carries significant implications for the structure and delivery of future retirement benefits.

This shift has been identified and highlighted by the European Commission and EIOPA in recent years. Notably, the EIOPA’s technical advice for the review of the IORP II  includes a chapter on the shift from defined benefit to defined contributions (Chapter 5) to explore the need for and possible ways to adapt the regulatory framework to the shift.

In relation to the growing trend towards DC in some European countries, we have been working on a series of publications to understand the shift towards DC and its implications since 2016. Our past publications are available below.

European Pillar of Social Rights

The European Pillar of Social Rights (EPSR) has been jointly signed by the European Parliament, the Council and the Commission in November 2017. You can find the text of the Proclamation here. It aims to strengthen the social acquis and to deliver more effective rights to citizens. The EPSR sets out a number of key principles and rights to support fair and well-functioning labor markets and welfare systems. It serves as a compass for a renewed process of convergence towards better working and living conditions among the Euro Area Member States but is applicable to all Member States wishing to participate.

The Pillar builds upon 20 key principles, structured around three categories:

  • Equal opportunities and access to labour market
  • Fair working conditions
  • Social protection and inclusion

Principle number 15 is about the old age income and pensions: 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. Everyone in old age has the right to resources that ensure living in dignity.

PensionsEurope is closely monitoring the development of the EPSR and the legislative and non-legislative follow-up initiatives. For instance, in 2016, PensionsEurope answered to the European Commission consultation on the EPSR. 

The newly appointed Executive Vice-President for People, Skills and Preparedness Roxana Mînzatu will be responsible for developing a new Action Plan on the European Pillar of Social Rights in 2025, as mandated in her mission letter. We intend to work on any relevant initiatives for funded pensions.

High Level Group of Experts on Pensions

In December 2017, the European Commission adopted the decision of setting up a High-Level Group of Experts on Pensions, an advisory group consisting of three members representing stakeholders in pensions, four academics, the EU level social partners, EIOPA and the European Commission. The expert group was asked to provide policy advice to the Commission on matters related to ways of improving the provision, safety through prudential rules, intergenerational balance, adequacy and sustainability of supplementary (occupational and personal) pensions. PensionsEurope Secretary General / CEO Matti Leppälä was part of this group.

Between 2018 and 2019, the HLG worked on an independent report providing analysis and policy advice related to the role of supplementary pensions in contributing to adequacy of old age incomes and the development of their market in the Union. The 10 meetings chaired by a representative of the Commission at Director level led to the adoption of the Final Report of the HLG on Pensions, published in December 2019.

The HLG Report identifies the main challenges affecting the concept and design of supplementary pensions and those related to the EU dimension of supplementary pensions. Moreover, it assesses their contributions to adequate and sustainable retirement incomes, and their role in relation to sustainable finance. The HLG report also provides a set of recommendations addressed to EU institutions, national policy makers, social partners and other stakeholders. 

You can read the PensionsEurope press release below.

Pension Tracking Systems and Dashboards

PensionsEurope  support the development of national Pension Tracking Systems and the European Tracking Service project, which supports mobile workers manage their pensions by providing an overview of pension entitlements throughout Europe.

We believe that the PTS can be a very powerful tool to make people aware of their financial situation for the old age and can help them to take the right financial decisions. It is also one important element in a retirement system, and it should of course be accompanied by other measures fostering good retirement provisions.

Personal Pensions

PensionsEurope promotes good pensions for the people in Europe in all different shapes and forms, including personal pensions. Personal pensions are long-term savings products that individuals contribute to on a voluntary basis, complementing social security and workplace pensions. Personal pensions can have a role to play in linking long-term savers with long-term investment opportunities, helping to channel savings towards capital markets and benefit investment and growth in the EU.

As part of its work on the CMU, the European Commission has explored ways to increase choices for retirement savings and build an EU market for personal pensions and decided to introduce the PEPP. The pan-European personal pension product (PEPP) is a voluntary personal pension scheme that will possibly complement existing public and occupational pension systems, as well as national personal pension schemes. They are regulated through Regulation 2019/1238, also known as the PEPP Regulation, which entered into application in March 2022. 

So far, the PEPP’s development has been slow. There is only one PEPP provider, Finax, in Europe. Some of the obstacles identified to its development include e.g., the 1% fee cap, which may discourage providers to sell PEPPs, unfavourable tax treatment compared to national alternatives in some Member States, the delay of the implementation of the regulation in some countries. Initially, a review of the fee cap was expected for 2024, but this has been postponed by the European Commission. There is currently no further indication on a date for the fee cap review and whether it will take place. 

In September 2024, EIOPA published a staff paper on PEPP analysing the reasons for its limited uptake and providing some proposals for a potential review of the Regulation. EIOPA is pushing for a comprehensive review well ahead of the planned 2027 timeline, though it remains to be seen what direction the European Commission will take on this issue.

In parallel, several reports focusing on the potential policy directions for the 2024-2029 mandate of the European Commission have highlighted the need for attractive long-term savings products for EU citizens. This focus is anticipated to be important under the new European Commission mandate. President von der Leyen’s mission letter to Commissioner for Financial Services and the Savings and Investments Union Albuquerque emphasises the importance of advancing action in this area, though it remains unclear if this will lead to specific proposals on pensions or only broader long-term savings initiatives. Pensions, unlike general long-term savings, are treated distinctly in legislation and taxation across Member States.

Two approaches have been suggested to increase the development of long-term savings products. The Letta Report proposes an “Auto-Enrolment EU Long-Term Savings Product,” expanding on the existing Pan-European Personal Pension Product (PEPP) model. By contrast, the Noyer Report recommends a bottom-up approach, recognising that viable personal pension products already exist in some Member States. It advocates enhancing these products through a European label for “high-quality” national options that meet specific criteria.

PensionsEurope has extensively worked and supported the PEPP initiative, cooperating throughout the EU legislative procedure with the EU Institutions and EIOPA to defend the interest of our members. We will continue to work on any initiatives in relation to personal pensions, which may be carried out in this political mandate.

Others

PensionsEurope is also working on the following issues:

The European Parliament, the Council and the European Commission reached a compromise on 27 November 2013 on the directive on minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary pension rights. COREPER endorsed the text on 4 December 2013 and the Employment Committee of the European Parliament adopted the text on 9 December 2013. The Directive does not cover, what is often called “portability” of supplementary pensions, i.e. the possibility of keeping pension entitlements by transferring them to a new scheme in the event of professional mobility. However, the agreed Directive sets out certain rights and obligations for members of supplementary pension schemes.

The directive relates to a European Commission proposal dating back to 2005 on which the Parliament adopted its first reading in 2007. Since then, the proposal has remained blocked in the Council. In 2012 the European Council called for the sustainability of pension systems to be improved and for the acquisition and preservation of supplementary pension rights of mobile workers to be strengthened. Following this request, the Cyprus, Irish and Lithuanian Presidencies have resumed work on the directive. The new rules will be based on Article 46 of the Treaty on the Functioning of the EU (free movement of workers).

Main features of the agreed directive:

  • the directive focuses on cases of labour mobility between Member States only. The Council and the Commission have however added a statement to the minutes of the Council to ensure equal treatment of internally and externally mobile workers. This is up to the Member State. The directive applies to supplementary pension schemes apart from the schemes covered by Regulation 883/2004 and shall only apply to periods of employment falling after its implementation;
  • the directive defined the principle of “outgoing worker” as an active scheme member whose current employment relationship terminates for reasons other than becoming eligible for a supplementary pension, and who moves between Member States;
  • any vesting periods and/or waiting periods (combined) are limited to a maximum of three years;
  • the minimum age for starting the vesting of pension rights, may not exceed 21 years;
  • where a worker has not yet acquired vested pension rights when the employment relationship ends, the supplementary pension scheme shall reimburse the contributions paid by the outgoing worker, or paid on behalf of the outgoing worker;
  • Member States must ensure that outgoing workers’ dormant pension rights or their values are treated in line with the value of the rights of active scheme members, or the development of pension benefits currently in payment, or by other means, such as: safeguarding the nominal value of the rights or adjusting the value of the dormant rights.
  • The Member States must ensure that active scheme members can obtain on request information on how a termination of employment would affect their supplementary pension rights. Furthermore, Member States shall ensure that deferred beneficiaries can obtain on request information regarding the value of their dormant rights or an assessment of the dormant pension rights carried out no more than 12 months preceding the date of the request and the conditions governing the treatment of dormant pension right. A Member State may request that an outgoing worker notifies his/her scheme in case of moving to another Member State.
  • In various parts of the text, the role of the social partners is referred to. Implementation of the provisions set out in this directive can be delegated to social partners, as long as provisions implemented by them do not offer less favorable protection and do not create obstacles to the freedom of movement.
  • The text mentions that Member States shall adopt the Directive no later than 4 years after the date of entry into force. 

There have been significant changes to occupational pension policy in some Member States of the CEE (Central and Eastern Europe) region. In this part of Europe mandatory funded pension pillars have been established prior to the EU enlargement. The Member States were inspired for their pension reform by the World Bank model. In 2005, PensionsEurope established a CEEC Forum to promote the dialogue with the private pension industry in the CEE and the regular members of PensionsEurope in order to raise the concerns of the private pension sector in Brussels.

The EU pension policy recognises the importance of funded occupational pensions in providing adequate and sustainable pensions. Nevertheless, we see worrying developments in some of those Member States. PensionsEurope is committed to defend the interest of its members at all levels and has many times added value to its members by supporting their advocacy efforts at national level. Because of, among others, short-term fiscal objectives and the current economic environment, some Member States are jeopardising existing multi-pillar pension systems in order to improve public finances. We are of the opinion that citizens might lose trust in occupational pension schemes when money is taken out of the pension fund or if the pension fund is even dismissed entirely. Moreover, pension reforms could spill-over to other Member States of Eastern and Central Europe with similar systems. Therefore, we try to raise awareness with the European institutions and we try to support the pension funds in the respective countries where we can. 

PensionsEurope defends the interests of its members against adverse policy actions and where the pensions they represent may become under threat. We promote the role and the need for funded private pensions at all levels throughout Europe and we are ready to support and defend the interests of our members whenever needed and at all levels.

Every year, we organise our Central and Eastern European Forum, in different cities of the region. These events aim to raise awareness of issues in funded pensions in the region.