European capital markets union is good for pensions in the EU

Published on: 25 September 2020

Yesterday, the European Commission issued a new action plan: "A capital markets union for people and businesses." A plan that is particularly important for pension funds and pension providers.

Capital markets in the European Union are still very national, which makes it difficult for savers and investors to invest everywhere. And it is not easy for companies to raise capital from all Member States. In addition, London, the largest financial center in Europe through which many European capitals flow, has ended up outside the EU due to Brexit. The Commission intends to do something about this. Because one real, well-functioning European capital market makes it much easier to finance companies for the economic recovery after the corona crisis. And this accelerates the green and digital transitions to a sustainable economy. In addition, a capital market union makes it safer and easier for citizens to invest and save for the long term. There is a nice factsheet about this on the website of the Commission.

The action plan consists of 16 actions, divided into measures to benefit SMEs, measures to help individual citizens, savers and investors and measures to achieve a single European market.

These actions will help pension funds with their investments in other Member States. Some proposals are particularly important for funds. These concern, for example, simplifying withholding tax refunds, better protection of investments against 'unreasonable' government action and improvements in the market for securitizations (the repackaging and reselling of loan packages, so that banks can take risks off their balance sheet, while other parties such as institutional investors will often like to have them). Some will still have to overcome significant political resistance, for example on insolvency law (action 11), where national views and traditions are very strong. However, it is also important for international investors that insolvency law functions properly, comprehensibly and quickly if an investment unexpectedly does not end well.

Action 9, which aims to help Member States to improve "pension adequacy" (the extent to which a pension is sufficient and corresponds to previous expectations) for their citizens, merits special attention. The Commission has noticed that Member States with funded supplementary pension schemes (such as ABP and bpfBouw) have better functioning capital markets. The institutions operating these funded pension schemes, also invest throughout the European Union. The Netherlands is such a member state, but only a minority of member states have funded pension schemes. In many other EU countries, pension adequacy falls short.

And that should change according to the Commission. In order to give European citizens better opportunities to save for their old age and at the same time promote European investment, the Commission wants to do three things:

  1. Develop a dashboard to track pension adequacy in the Member States.
  2. National pension tracking systems, so that as a citizen you can always and everywhere see what income you can expect for your old age.
  3. Investigate how auto-enrollment (automatic participation, usually with an opt-out) and other schemes can ensure that participation in occupational retirement provision is greatly increased.


It is remarkable that pension funds are suddenly under the heading “retail”, but it is actually also right if you put the perspective of the participant first. After all, it helps employees to take full advantage of the European capital market. The Commission is committed to improving understanding of Member States and citizens. This to increase the willingness to take action. She will then try to formulate good policy instruments, without offering them as compulsory uniformity. Hopefully, a dashboard and pension registers will greatly increase citizens' pension awareness. They can then look for individual forms of saving and investment themselves, but perhaps also as voters or employees ask for better supplementary collective schemes. The Commission explicitly preserves the powers of the Member States for the proper implementation of such collective schemes. Whether this should be achieved in individual Member States by pension funds, insurers or asset managers (and whether this should be collective or individual) remains open. But a better pension result is in any case high on the agenda of the Commission.

In the Netherlands, too, there are people with less access to pension, such as employees of companies that are not affiliated to a pension scheme ("blank spots") and self-employed persons. A good 'dashboard' for the Netherlands will also show that. Hopefully, the study that the Commission intends to conduct into auto-enrollment will also yield ideas that will help us in the Netherlands.

The fact that the Commission has chosen this direction does not come out of the blue. An expert group, set up by the Ministers of Finance of France, Germany and the Netherlands (link) - and of which Corien Wortmann (CEO of ABP) was a part - and a 'High Level Forum on CMU' (link), where Eloy Lindeijer (PGGM's chief investment management) was a member, both came with recommendations in the same direction. The European Commission is now following these two expert groups, who unanimously saw the importance of good funded pensions for the European capital markets union (and vice versa).

It would be nice if this also opened up a more positive way to talk about pensions and Europe. The Dutch pension fund sector is keen to be involved in the design of the capital markets union. We may be heard even better if we show that the pensions of all European citizens are important, and that we also think along with the Commission about this.