Brussels urges EU member states to support collective pension savings
European Union authorities signal a stronger commitment towards furthering the integration of private pension systems across Europe and extending the single market to insurance and pensions.
In November 2015, the European Commission highlighted efforts by a number of countries in reforming their first-pillar pension systems, especially in the view of increased longevity. At the same time, it insisted that further steps needed to be taken by member states to maintain current retirement income levels, by extending working lives and/or providing other sources of income through supplementary collective and individual pension savings vehicles, i.e., second and third-pillar pensions.
For the second pillar, there definitely is space for a pan-European occupational defined contribution system and the Commission calls for a Europe-wide framework governing occupational defined contribution (DC) pension funds. This framework will allow taking advantage of the EU internal market and provide a cross-border platform to reduce costs, support long-term funding of the EU economy and ultimately deliver better pension outcomes. A single market for insurance and pensions will allow more cross-border sales and better portability of products.
As far as the third pillar is concerned, the pan-European personal pension product developed by EIOPA (European Insurance and Occupational Pensions Authority) could play a role in developing pension saving where occupational systems were not in place. However, one of the issues is the inability of many Europeans households to contribute to such systems.
On the operational side, TTYPE (Track and Trace Your Pension in Europe), a Europe-wide pension tracking service which is understood to be a key enabler and facilitator for cross-border and pan-European activities, published an initial report in early 2015 and is now examining how to proceed with the development of a viable business plan.
Obstacles at the European level do remain, including convincing Europeans of the economic benefits of private retirement savings; involving social partners which have an important role to play in many circumstances; and the need for an overhaul of the IORP Directive to push pensions managers towards longer-term investments. The IORP Directive of 2003 is the European prudential framework for Institutions for Occupational Retirement Provision (IORPs) or pension funds; it may be superseded by a new directive, IORP II, which is currently being drafted.
The political signals sent by Brussels in late 2015 may be followed by action at the EU level and by the introduction of pan-European pensions products and services. However, their uptake is very much dependent on the attitudes of European employers and consumers, and last but not least, of insurance distributors and financial advisors. To this day, this issue appears to remain largely unrecognized by European authorities.