What policies should the next European Commission prioritise to strengthen European pensions?

Since the first report published in 2012, ensuring both the adequacy of pension systems and their financial sustainability over the long term, have been the key and mutually intertwined goals of the EU’s pension policy. These principles have not lost any of its relevance.

‘Pension’ is a broad arena. As Avida International is an independent consultancy specialised in investment governance serving mainly pension funds throughout Europe, I will focus my comments on institutional pension organisations. From our perspective, the goal is to pursue efficient pension investment organisations that serve best the interest of their members by delivering safe and adequate pension benefits at low costs. In our view, this is best achieved by optimising the governance with regard to institutional coherence, consistent processes, appropriate talent and expertise within a regulatory framework that sets the policy goals without overburdening pension funds with regulatory demands and restrictions.

At the EU level, the regulatory framework should recognize the diversity of funded pension arrangements across member states. Huge Dutch pension investment organisations exist besides sometimes tiny German ‘Pensionskasse’. While we certainly support a certain degree of consolidation for efficiency reasons, this is a topic for the national agenda. A one-size-fits-all approach in pension micromanagement does not work on the EU-level.

There has been sufficient academic underscoring that institutionally organised pension provisions are more efficient than private savings. Promoting a pan-European private savings product may do no harm, but setting the appropriate framework for institutional pension funds would be certainly more effective.

We support in principle the goal of the Letta-Report of creating a Saving and Investment Union to unlock the potential of the Single Market. Pension funds as large institutional investors in the EU would benefit from the investment opportunities a deeper and better integrated EU Capital Market would offer. It should be recognised though, that diversification of investments is a cornerstone in investment theory and practice and a strong “home bias” has been criticised in extension by academic research. 

There seems to be creeping a certain bias towards “Economically Targeted Investments” into the debate, meaning that investments are selected for the benefits they create in addition to the investment return to the employee benefit plan investor. Mobilising pension funds’ assets for financing the green and digital transition is definitely a highly contested ground. The basic purpose of pension funds is to provide the best possible pension benefits to their members.