Committee on Economic and Monetary Affairs Ordinary meeting
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ECON European Parliament
Follow its sittingsPatrick Oudges
This includes simplifying reporting requirements, as EIOPA has just proposed for Solvency II, and ensuring that market information on the sectors is clear. In closing, we stand ready to support the parliament to work on these key legislative proposals and bring them to real action that will help to offer our citizens the possibility for much needed enhanced retirement outcomes and protection against old age poverty and can contribute to a more stable, efficient, and competitive financial and economic system. Thank you.
Edith Matt
Dear members of the European Parliament, it's an honor to address you today on the important subject of the role of pension funds and insurers in capital markets. Europe is facing two structural challenges at the same time. First, our population is aging rapidly, putting increasing pressure on public finances and pension adequacy. Second, we face an investment gap to finance the green transition, digitalization, and our economic resilience. Funded occupational pensions sit precisely at the intersection of these challenges.
They can provide adequate retirement income while also mobilizing long-term capital for the European economy. That is why we strongly welcome the objective of the commission's supplementary pension package of expanding capital-funded pensions in Europe. Within Europe, the Dutch pension system is recognized to deliver on both of these challenges. I want to highlight two important elements of our system because they are relevant for the interaction within the European Investment Agenda and the review of the IRB2 directive. First, collective participation.
Nearly all employers participate in our second pillar, and workers are mandatorily enrolled. This provides scale. Dutch pension funds collectively invest around €1,700,000,000,000, representing more than 150% of GDP on behalf of over 90% of the employees. The scale and inexpensive distribution keep costs low. Second, the role of social partners.
Employers and employees jointly design and govern pension schemes. This aligns the interests of the scheme with its members and beneficiaries. It also ensures long-term stability and trust in the system. This combination has delivered a strong outcome, relatively high replacement rates, cost efficiency, and well-diversified portfolios. Now let me turn to the role of pension funds in the capital markets.
Pension funds are not just institutional investors. They are long-term investors by design. Their liabilities stretch over decades. This allows them to invest in illiquid assets and highly diversified portfolios, such as infrastructure, private equity, and private debt investments that are essential for Europe's future but require patience and stability. This long-term horizon also gives pension funds a stabilizing role in markets.
They are less prone to pro-cyclo behavior. When markets fall, they are typically not forced sellers. In many cases, they can even invest counter-cyclo. In short, pension funds are uniquely positioned to provide the kind of patient, risk-bearing capital that Europe currently needs more of. What can Europe do?
If we want to fully unlock this potential, action is needed at both member state and the EU level. First, at member state level, the priority should be clear: expand funded occupational pensions. The Commission's recommendations provide a solid roadmap. Tools such as auto-enrollment, pension tracking systems, and pension dashboards can significantly increase participation and transparency. We encourage the European institution to actively promote and monitor the implementation of these recommendations, which, while fully respecting national competences and the role of social partners.
Because ultimately, without sufficient pension savings, there is less capital to invest. Second, at the EU level, the IRAP two direct reviews is crucial. It must deliver a framework that enables rather than constrains the role of pension funds. Let me highlight three key points. A modernized prudent person principle.
We welcome the reinforced prudent Persian principle. A generally risk-based framework allows pension funds to invest in a broader range of assets, including alternatives. This is essential for achieving higher long-term returns and supporting the real economy. At the same time, some elements of the proposal risk pulling in the opposite direction. In particular, the proposed approach to benchmarking and performance assessment should discourage investments in illiquid and innovative asset classes.
Short time horizons and rigid benchmarks tend to incentivize benchmark hugging, reducing risk taking and limiting diversification. This would be counterproductive to the objectives of the Saving and Investment Union. Finally, we must avoid excessive regulatory burden. Occupational pension systems are not retail financial products. They are collectively organized for-profit schemes governed by social partners.
Some elements in the proposal, such as a general duty of care and the mandatory appointment of a depositary, risk duplicating existing governance safeguards. This would increase costs and complexity without clear benefits for the members. Conclusion. Let me conclude. Europe needs a more long-term capital, and it needs better pensions.
Funded occupational pension system can deliver both, as the Dutch experience proves. The commission's pension package is an important step forward, but its success will depend on two things: whether member states take action to build and expand funded systems, and whether the EU provides a regulatory framework that enables pension funds to invest effectively for the long term. If we can get this right, pension funds can play a central role in the strengthening of both Europe's social model and its economic future. Thank you.
Speaker 5
Thank you, Madam Chair, honorable members. Today's discussion on the role of pension funds and insurers in capital markets goes to the heart of Europe's savings and investment union. Europe does not lack savings. It lacks efficient allocation of those savings. As Mario Draghi, Henri Coletta and Christian Noir want, Europe faces a situation where savings are abundant, yet insufficiently channeled into productive investment, leading to weaker growth and lower returns for the citizens.
Sébastien Comard
Pension funds and interest are therefore central to this debate. Since few savers currently invest directly in capital markets, pension funds and insurers are one of the main bridges between households and capital markets, especially through long-term and pension products. The ongoing review of the Pan European personal pension product and the IOP2 directive, therefore, offers an opportunity, if properly implemented, to improve returns, transparency, and access to capital markets for European savers. From a service perspective, they should provide access to better long-term returns, transparent, cost-efficient products, and investment strategies aligned with citizens' interests. From the perspective of a saver and individual investor, supplementary pensions and long-term investment insurance-based investment products, such as life insurance, in Europe too often fail the simplest test.
Do they deliver sustainable, positive, real returns after cost and inflation? And too often, the answer is no. At the same time, individuals are increasingly expected to take greater responsibility for their retirement, to complement statutory pensions, to save more, and to start earlier. This creates a double burden, financing current retirees through pay-as-you-go pension while saving for one's own retirement. Better Finance latest edition of the Will You Afford to Retire report shows that the ten-year median real net return of pension products is barely positive at 0.3%.
A significant number of product categories continue to generate negative average returns, eroding the purchasing power of pension savings. Two strong market years have not compensated for a decade of mediocre outcomes. In that context, it is paramount that supplementary pensions and our long-term investment products used for retirement purposes start delivering good value for money. Against this backdrop, the commission's supplementary pensions package moves in the right direction. Both occupational pension schemes and the PEP hold great potential to enable European citizens to achieve pension adequacy while also deepening the U.
Capital market. Better Finance welcomes the commission's effort to enhance the capacity of the supplementary pension sector to improve retirement income. Performance cannot be separated from costs, transparency, and product design. From a service perspective, supplementary pensions often suffer from high and opaque fees, complexity, and too conservative investment strategies that fail to preserve purchasing power. This directly undermines trust.
But the financial research shows that personal pension products are on average significantly more expensive than occupational pensions by around 1.1 percentage points annually. Again, that has a major impact on long term outcomes. We therefore welcome the European Commission's proposal to announce long-term performance disclosure, introduce a clear duty of care for pension funds, and strengthen the prudent person principle. The duty of care is particularly important. It clarifies that pension providers must deliver adequate, risk-adjusted and cost-efficient returns over the long term. And the proposed prudent person principle instead of rule, we believe grants pension scheme managers flexibility to do that in a way that suits the needs of the individual participants.
But flexibility must come with accountability. Greater freedom to invest in capital markets must translate into better real net returns for members. If pension funds and life insurers are to play any significant role in the further development of European capital markets, they'll need to convince individual investors to entrust them with more of their life savings. And to be convinced, investors will need to see evidence that these products offer value for money. Clear data on past performance and actual costs, comparison of performance of pension funds and life insurance contracts to that of the capital markets.
Moreover, conflicts of interest must be addressed more decisively. Whenever possible, they should be eliminated, not merely managed. Finally, we must look at whether Europeans are actually prepared for retirement. The answer is concerning. According to a 2025 joint study by Better Finance and the European Financial Planning Association, only 44% of Europeans know how much they have saved for their retirement.
Only 41% actively prepare for retirement, and 32% neither prepare nor intend to do so. This reveals a significant preparedness gap, with strong disparities across countries and between men and women. Low levels of engagement, combined with limited financial literacy and increasing expectations to save in this and invest more and earlier, create a risk of growing socioeconomic vulnerability. At the same time, access to supplementary pensions remains uneven across member states and across income and age groups. In this context, instruments such as a PEP have clear potential, especially now that insurers and pension funds are allowed to offer either tailored or basic PEP or both, lower entry barriers, accommodate different business models, and encourage innovation that should result in better outcomes for savers.
Honorable members, pension funds and interest have an important role in Europe's financial architecture, and in facilitating indirect access to capital markets. From a citizen's perspective, their success in advancing the SIU through the supplementary pensions framework will ultimately be judged by a simple question: whether they offer cost-efficient products, deliver adequate risk-adjusted real returns, and thereby contribute meaningfully to improving pension adequacy for European citizens.
Thank you.
Luca Juncker
Dear Madam Chair, dear honorable members of the European Parliament, thank you for giving me the opportunity to share my views with you. There is a need for decisive action at both the national and European level to address the pension gap. European citizens are increasingly concerned about their financial prospects in retirement. As shown in EIOPA's Eurobarometer 2025, only 42% of Europeans without a supplementary pension scheme are confident that they will have enough money to live comfortably in retirement. My main message to you today is that European insurers are uniquely positioned to help close the pension gap while strengthening Europe's economy.
This matters for two main reasons. Number one, from the pensioner perspective. We accompany savers throughout their lives, from early accumulation to decumulation in retirement. Even during the accumulation, a phase that can last over two decades, insurers continue to invest on a long-term basis through their general accounts. And number two, from the wider real economy angle, insurers are long-term investors by design.
Speaker 7
Our business model is built around long-term commitments. This allows us to provide planning certainty to invest where it matters the most for European infrastructure, SMEs, unlisted companies and long term growth projects. Today, insurers invest 9,500,000,000,000, with around 70% of that invested within the European Union. This capital is already working for Europe, and it can do more. But to close the pension gap, policy must start from what the citizens want.
Many Europeans are risk-averse. They want security, not volatility, when it comes to their retirement income. Surveys consistently show that safety ranks higher than returns for a large majority of savers. Ignoring this reality will not increase participation. It will push people back into bank accounts.
So the policy objective should be clear: offer a choice. A successful framework must allow products that combine capital market participation with risk-mitigation mechanisms. Insurance-based solutions protect citizens against severe market volatility, cover biometric risks such as longevity and disability, and can provide the certainty of a lifelong income, including through modern guarantee structures. This is where your legislative choices matter. Let me turn to the two legislative proposals on the table.
First, on the PEP. PEP should not be treated as a single, rigid product. Europe's pension systems and its citizens are too diverse for that. PEP should be a flexible label that can attach to new and existing national products that fit its criteria. For PEP to succeed, it needs to be simplified.
The commission's proposal moves in the right direction. It allows to offer tailored PEPs, removing cost-driving requirements such as mandatory subaccounts and replacing the rigid 1% fee cap with stronger product governance. To make PEP a success, you should go further: Expand consumer choice within the basic PEP, including modern risk mitigation tools such as partial guarantees, allow for inducements based distribution. Only allowing execution only or independent advice will restrict tremendously the distribution reach of the product, potentially depriving advice from a segment of the population that effectively needs it and allow for more flexible investment rules so that PEP can meaningfully support long term European assets. Second, on IORP.
We acknowledge that it shall remain minimal harmonization, and we welcome the emphasis on enabling long-term investment, including in illiquid assets. Lastly, some remarks on the remaining parts of the supplementary pension package. We support voluntary opt-out automatic enrollment for employers, platform-level order enrollment, provided national implementation remains flexible and low threshold. Products should be chosen at company level, not centrally imposed, to reflect business realities and ensure broad participation. A pension tracking system will be a game changer if it is simple, digital, and intuitive.
It should cover all pillars of retirement provision and minimize access barriers. Requiring multiple credentials, such as an online ID card, codes, and tax IDs, risks discouraging users. Let me reiterate my main message to you. Avoid mistakes that led to the initial failure of PEP. Highly detailed product standards set at EU level do not work.
Prioritize what citizens want, and offer choice. For that, we need a flexible framework that allows insurers and IORPs to innovate and respond to citizens' real needs. Thank you.
Speaker 1
Thank you. Q and A session. Two minutes for the question, five minutes for the answer. And please let us know to whom your question is addressed. And we will start with EPP and Mr.
Gotting.
Speaker 9
Thank you, Madam Chair, and thank you to the experts on the panel. It's very interesting that we also start this debate now in the committee. I would have a question. Well, a broad one, which is the first one, is looking at the proposal, do the experts think that we're actually achieving the goal of making it more interesting or welcoming for member states to actually start IORPs? Because I think everyone agrees that we don't have enough of them.
Speaker 8
And then going deeper into that question, I see, and it was raised already by several speakers, elements in the proposal like a very broad generalized duty of care, like investment benchmarks, or a very strong push to give EIOPA a stronger position in the supervision that doesn't seem to be very welcoming. It's not the idea of just getting started and then we'll manage to regulate. It looks like we're regulating and then hope for the market to somehow emerge or somehow IOPS to come up like mushrooms in the member states. That's not the case. 50% of IOPS value is situated in one country, which is The Netherlands, and which is why you will see many Dutch people around these debates, because we only have 5% of voting rights and 50% of the value.
So we are very concerned because the way that sometimes, and also this European Commission, has spoken about pension funds is that we're gonna make Europe great again with the money of the pension funds. But that's not the point. The point is, are member states ready to start IORPs and to convince also workers that they will invest every year 5 to 15% of their salary, their gross salary, into a second pillar system. That is a very big political decision, not easy. And I'm not sure that what I see in front of me now is actually doing that job.
So a reflection from the experts on that would be very helpful.
Speaker 11
From each expert, I mean, all of the experts, the force one, the fore one? Or maybe two?
Patrick Oudges
Many thanks. Many thanks also for the question. I understand that you're concerned that the proposals would hinder member states from starting up IROPs, and I'm not so sure if this is how we read the proposals. I think how we read the proposals is that there is a need for more IRFs in Europe, and that we want to make sure that the design of that system is for the benefit of European citizens. So I think there's a couple of elements in your question that I think are pointing to a direction where I don't think the proposal is going.
For instance, the comment about spending the money of the pension funds on Europe, it's not the case at all. As I explained also in the preliminary remarks, there is a need. There is a gap. There is inefficiency in the system in a certain sense of savings that don't deliver for citizens, hold up in bank accounts, and we want a more investment-driven culture in Europe. So IRFs can play a key role there.
But in order to play that key role, there needs to be safety, security, and a sense of trust in the system. And that's where the, you would say, the design of an IRB brings added value, because it gives you some, say, guarantees as a citizen that your money is protected well. You can also build a pension system outside the IRBs. We see that in many member states. We don't think that's a good idea because from the perspective of the citizen, the individual European citizen, their individual rights are less protected in such an environment.
So it's not about whether or not apps prevent setting up systems. Yes or no. I don't think that's the question at all. It's how do we get it right? And that's our responsibility as policymakers.
It's not the responsibility of an individual citizen to just be financially literate. We need to build good structures, a good design in which industry can flourish, industry can deliver good products, but citizens know and are assured that the money is in a safe system. This is what we think the proposal is about, and that it's going in the right direction. Yes. We could go much further if it were up to us, but it's in the right direction.
Edith Matt
Yeah. The first part of the question, is it attractive enough to start? I think creating awareness is the first step in making a change. So I think what's a good element in the proposals of the commission is the pension tracking system on a national level. So, the people in the member states are aware how much pension is there for them in the long term, but also the pension dashboards, for policymakers, is very important.
So I think it starts with awareness. The commission has good elements in the proposal. We see I think it's also very important that the proposal has a good balance. We also see elements that is creating more regular regulatory burden. For example, the duty of care, it's very sympathetic, I think, to have a duty of care, but it's a very broad, a broad general duty of care, which is very difficult to implement for pension funds.
In The Netherlands, we have very specific duty of care, for instance, on communication and choice guidance. And that's, I think, a good way of implementing a duty of care. So I think, on certain levels, there has to be more balance. Also, for example, on the performance benchmark, there is a contradiction between the prudent person principle and the performance benchmark. We think it's a risk for performance hugging benchmark if you put too much emphasis on the performance benchmark.
I think the prudent person principle, that's where the, really, the push is for pension funds to create a good pension. You have to decide as a board what is the best way to invest to make sure that the members get a good pension. So I think it's more balancing the proposal.
Francisco Assis
Thank you. I will speak in Portuguese.
Thank you. Well, first of all, I would like to stress how important this debate is. Of course, this isn't a technical debate. It's extremely political because here we have very detailed policy options. What are the challenges?
First of all, we have an aging population in Europe with low birth rates. Obviously, that means that pressure on public pension systems will increase. And the issue of intergenerational solidarity is extremely vital. This will have an effect on the European economy. We don't save enough.
We don't invest enough. European culture doesn't traditionally invest in capital markets. So we need to take into consideration those two things. Now there are a few questions we need to raise. First of all, pressure on public pension systems.
This begs the political question. If we have an aging population with low birth rates, could migration flows increase the sustainability of the systems? And hopefully, we could see better distribution of resources and better use of time. This means that the future could be different from what we have now. And therefore, we need to remember the fact that the replacement rate will be 40% by 2040.
I don't think that's acceptable. This is something we need to remember when it comes to public pension systems. AI technology needs to be used, and there needs to be a debate around the other types of resources for our pension systems. My questions are as follows. The individual pension product, the PEP, that was adopted has been a failure.
Is this because of supply or demand? Secondly, one of the proposals is to get rid of the capital of the product within the PEP. So what kind of impact could there be from changes to the increase in inequality? And a question for Mr. Ruges and Mr.
Lucas Mr. Juncker.
Luca Juncker
So yes. So I believe on the failure of the PEP, whether this is a supply or demand issue, I think it is ultimately the key reason why the PEP in the prior format failed is because the rules were too restrictive. It is, from our perspective, not the right direction to impose at the European level detailed product design rules that are, I'd say, in conflict with products that exist at the national level. A second reason really is, from my perspective, related to tax. It is, of course, if you put yourself into the shoes of a consumer who has the choice between a PEP that is not tax-incentivized and a competing national product that is tax-incentivized.
It's a natural choice for the consumer to pick the national product. And for this reason, our proposal, in order to fix this issue, is to really understand the PEP as a flexible label that can attach to existing national products as well, of course, under the condition that they fulfill the prerequisites that you set for the PEP.
Mr. Ayoppa.
Patrick Oudges
Yes. Maybe that's easier for you guys, right? It's a bit of a complicated Dutch name, so apologies for that. And now thanks for the question. And indeed, why did we originally initiate this whole idea of the PEP?
Because we truly believe that there is a room and a space for such a product in the European market. There is a huge need also, you could say, maybe not so much in established markets where people rely on national products, have, you could say, a lot of trust in national solution. That's not the case in all of our markets. That's the first. And we also have a significant, and I think this was also the point that was alluded to.
We have also mobility within our internal markets that we also need to accommodate and that maybe we also want to foster more, to make sure that part of our economic growth also comes in the simplification, you could say, of going cross border without, you could say, getting drowned in all kinds of administrative procedures and financial consequences that you cannot oversee. So there is a clear need for the product. Now what, in our view, happened is that with a lot of good intentions, a lot of additional requirements were added on top of the PEP that made it indeed a very complex product to offer. So there is clearly a supply issue as well as a demand issue because also these additional rules don't make it an easy to understand product. So what we propose is indeed to go back a little bit to the origins with, you could say, the basic PEP, have it as a, you could say, identified euro label or European label as an identified product that, you could say, offers good quality, good value for money for citizens.
It's simple to understand. And that, I think, is a market there is really a lot of appetite, but we have not, you could say, opened it up so much yet. So there is clearly a need for this product. You can say the questions are both on the supply side and on the demand side. And I think what we need to do is go a little bit back to simple structures, simple design, and indeed also having the ability to use a label also.
Already existing product is also one of the ideas I hope also is supported. Thanks.
Marlena Maląg
Yes. Thank you very much. I'm going to be speaking in my mother tongue. I do have a question, and it is more of a general nature, but more targeted to the representative of Europa. If we're looking at effectiveness criteria for these different retirement plans with a view to leading to an increased investment, there's a problem of the long-term stability of the reform and resistance to short-term changes in policy.
In Poland, unfortunately, we can recall that in February 2014, the then Tusk government reformed the pension funds under the second pillar and did this because of budgetary needs. And I do have a question, and also linked to the French failure to try and raise the retirement age. How should we proceed with the reform? How can we get consensus among society for these reforms and guarantee stability? And how can we create incentives, perhaps looking at different tax incentives, in order to encourage more investment in these different kinds of pension funds?
Thank you.
Patrick Oudges
Many thanks for the question. I think you touched on a couple of very important elements here. As I mentioned earlier, the starting point is a good design. So, and what do I mean with that? You need to take some decisions as a policymaker in terms of how you want your product to serve your citizens.
It can't be, you could say, completely left to the individual citizens under the umbrella of financial literacy, to find out what works best for you. That simply doesn't work. We know that there is an understood need. Citizens do see the problem on the horizon, but they simply don't always have the tools to, you could say, manage those issues. So you need to start with a good structure, a good design.
And then, indeed, it takes time. And it takes time because you can't just, you could say, superimpose a new reform onto a population. You need to bring everybody along. That means a dialogue with your citizens. It takes time.
We see that as well, but you need to do that. So it means that, how to proceed with reforms, with a proper design. And I think there are some of the ideas that the commission asked are really helpful there because if you have, for instance, a dashboard that we can operate at the European level, we can also provide additional input, additional information to the national level on different, you could say, suggestions on reforms in your system, how would that work out in terms of benefits at the end, for individual citizens. So we can really help there with tools to provide additional information that can support at the national level a discussion, a public discussion about the need for reform, how that reform will, you could say, interact with the different interests that individual citizens have. And there, you need to think about individual choice, as already mentioned, versus protection.
So how much individual choice would you allow in the system and how much you could say protection, for instance, against old age, against longevity do you want to bring in the system? These are all questions that in your design, you need to make a decision about because every, you could say, choice has a consequence in one or the other direction, but that consequence and that decision needs to be transparent. I think transparency is another key element of that discussion, and that is as well in the design phase and in the implementation phase. We already highlighted the importance of that, and I think it was also highlighted by some of the colleagues here. Good information to individual citizens about how their pension is going to look like really helps them also to become more secure, more safe in, you could say, knowing what their project trajectory will be into old age, and that means that they're also more active, more economically independent, more economically active.
That's another element, another feedback loop into our system that helps to keep our economies thriving because we all want to retire at a decent age, but also in an economy that is still thriving with services that are still being provided with people that have a job and with an economy that works well. So I think there, these choices, these elements that you bring, you need to communicate them clearly. You need to keep communicating them clearly, but it does really take time. And you need to start sooner rather than later.
Thank.
Stéphanie Yon-Courtin
You, chair. I'll be speaking French. Two years after the Drager report on March 19, just gone, the heads of state said that the savings union, savings and investment union, should be finalized as quickly as possible to invest in the future of the union, specifically to invest in the lives of our citizens. The challenges and the figures have already been recalled and are clear. In 2019, pensions covered 46% of retirement, but in 2028, it's only going to be 36%.
Speaker 24
There are a lot of European citizens who depend on their public pensions without being aware that they can add to them. Inaction increases the gaps. There is a gap in retirement between men and women of 24.5%. And so this is where the commission pension package has to intervene. First of all, to make complementary pensions attractive and accessible across Europe, and also to push states to improve their systems.
Stéphanie Yon-Courtin
As rapporteur on the PEP, my priorities are clear. We have to facilitate distribution and ensure that consumers have options according to different risk profiles. So I would like to ask Better Finance Alliance about the risks of the basic PEP. In the legislative proposal from the commission at the moment, the possibility to invest in riskier assets is limited. Would it be better to open that up for a better yield for investors?
You also talked about a rebranding, so to speak, a rebranding of the PEP to move away from the failures of the past PEP under the name of Europe pensions. I'm just wondering whether the markets would agree with this approach. So if I've understood correctly, the first question is for Mister Juncker and Kumar, and then Mister Ayopa for the second question. Okay. That's correct as the speaker.
Luca Juncker
Thank you. Yes. So with regards to the investment restrictions, indeed, we would welcome if the restrictions included in the proposal would be relaxed, because that would allow for assets to be invested more into long-term assets such as private credit, private equity, infrastructure, also venture capital, where at the moment, the 95% threshold is, from our perspective, relatively restrictive and would therefore lead to lower long-term returns.
Sébastien Comard
Thank you, Madame Mion Konta, for your question. Honestly, I don't see where the problem is really, because the limits on investments apply, to my understanding, to the basic PEP. And I think that's essentially linked to the fact that we want the basic PEP to be distributed without an advice. So that must remain a very simple product that targets investment into well-known, not so risky investments over the long term. But that doesn't mean that you cannot create a tailored PEP that would allow more exposures to those more risky assets.
Then in my understanding, the basic PEP is a very tight, straightjacket, but made to be very simple so that it can be understood. We stay on safe ground. But the framework itself allows providers to create as many tailored pets as they want to cater for the needs and demands of all types of clients, including those that are willing and want to be exposed to more risky assets. So in that sense, I think the proposal of the commission really manages to balance this need for a very simple, straightforward product and the freedom to create alternatives that are more risky or safer for anyone who wants more risk or more safety.
Patrick Oudges
Yes. And then on, indeed, the label. So indeed, in our proposal, we come with the Europe pensions label to replace, you could say, or to use instead of basic PEP. The idea behind that is based on, not just the feeling, you could say, we have done some assessment analysis in the Eurobarometer survey that was already mentioned a couple of times. And there, it shows that 54% of EU consumers would be more likely to buy a pension product if it had an official EU label, increasing to 65% for those 24 years old, which I think is an important target group as well.
And when we dove a little bit deeper into why that was the case, EU consumers expressed expectations that the label would mean better quality by meeting strict EU standards, and that's 40%. And they also reported greater trust in pension providers with an official EU label. And I think in that sense, indeed, in the volatile world that we are in, I think we are realizing more and more that we are lucky to be in Europe because, indeed, this is a place where individual rights are protected, and that's a value that we share. So it's also clear that having a European label identifies with that, you could say, recognition of quality and focus on, you could say, the protection of individual rights.
Damian Boeselager
Yes. Allow me a broader comment. I think, we talk about this topic very calmly, but I do believe in many countries we're in a pension emergency, actually. If you look at the current situation of one fourth of, for example, the German budget being needed to subsidize the pay as you go pillar, I think we're really in a very dire situation right now, and it's going to get much, much worse over the next years. And I don't really see how we can cover this with Pillar one only, and I therefore believe that Pillar two and Pillar three are quite important.
And this is the context in which we are operating. So let me ask a couple of rather concrete questions, maybe to Mister Hodges. We are missing the impact investment and impact assessment, Shoryu. And therefore, I'm wondering a bit, like, what do you think is really the biggest lever, the biggest change in the Arabs directive proposal by the European Commission? And also, do you think it would have made sense to look at the technical requirements in the solvency margin?
And maybe to Mister Juncker and Missus Maant, we are discussing constantly also the need to invest more into innovation capital. I mean, the Ragi letter were mentioned. What exact changes do you need in addition or do you see in addition to what the commission has proposed in order to enable that? So what are current blockers for better results, basically for beneficiaries but also for the innovation capital side? So, I mean, just very precisely, article 19 on the investment rules.
Of course, it says that assets shall still be predominantly invested in regulated markets, MTFs and OTFs. Are there additional changes in the investment rules that you think are necessary? Should we look at the solvency margin? What are real changes that can improve beneficiaries' outcomes? I'll leave it at these three people.
Thank you.
Patrick Oudges
Yep. Yep. I can start. Many thanks for the questions and indeed, also for the clear recognition that it is indeed a dire situation. We do see that in member states, that recognition has sunk in.
So you see a lot of activities and initiatives to do reforms. But what we believe is that this proposal can really help for is to do it in a more focused way. So there are a couple of elements there that can really help us to use those reforms, those investments that we are doing in structured reforms, you could say, in the right way, to not waste this opportunity, to simply add more, you could say, reliance on pillar one, which we do see happening in some of our member states, and we think it's the wrong reflex. Why is that the case? Because we believe that a strong three-pillar system is ultimately the best system that there is for citizens.
It means that you diversify risks, and it also means that in a way, by having different sources of retirement income, it also increases the awareness, increases the knowledge and expectations about your retirement income, which again helps then fuel back into our economy. So what does it mean in terms of these needed investments in Pillar Two and Pillar Three? I already mentioned why we think an IRB label is important because it provides a minimum, you could say, guarantees and a structure under which there is quality assurance, whether it's supervision or when there are rules. We know we don't always like rules, but we also need to understand that without rules, we're also not well protected. So we need to find the right balance.
Again, we think the commission has done that. It's still a minimum amortization regime. It allows a lot of flexibility on member side level, but it needs to have a push in developing pillar two and pillar three. And it's not only about abandoning the idea of pillar one. Pillar one remains needed, and it's also important to have a pillar one system in place.
But we need to recognize that in the time we were building those systems, we were in a completely different reality. Now we have an aging society. People grow a lot older. So you could say the proportion of retired people in our economy is much bigger. Therefore, simply, you can say, having pillar one as your only reliance on your old aid provision means that you live by a minimum.
And having such a large proportion of your population live by a minimum has economic consequences, has social consequences, simply doesn't work anymore in the current context. So it's not about abandoning pillar one at all. It's about recognizing the need to build an additional pillar two and pillar three system to keep, you could say, an economically healthy system going forward. The elements that are mentioned were already the pension, dashboards. It sounds a bit silly having data and collection, but it is crucial because without evidence, without direction, you can say, this is how it works best for you at the national level, you will start in the blind.
So the dashboard is important, and the tracking system would add to that. Sorry.
Damian Boeselager
Oh, so I tried to make the broader picture, but just the very precise question was also why or what is your current view on the technical requirements and the solvency margin, and why it wasn't taken?
In a few seconds.
Patrick Oudges
Yes. Okay. In a few seconds. So I think on the investment rules, we are quite open to have that more open. I think you're pointing at a very specific point, the capital requirements.
These are more in DB systems. So also, again, with guarantees, we don't think that is the way forward. So we do believe that the DC system is the way forward. We see it also happening in the market. It is not about, you could say, rolling the risks over from companies to citizens, because in a way, even in a DB system, ultimately, when the pot is empty, the pot is empty.
So you need to make sure that indeed you protect a DC system well, but we want to go to a more investment-driven culture in Europe. And that means also risk taking is part of life, is part of your old-age provisioning. You just need to be well informed about it.
Speaker 1
Thank you. There was also a question for Miss Matt and Mister Huyukhn. We will start with Miss Matt.
Edith Matt
Yes. I think the prudent person principle proposal is very helpful to stimulate investments. I think in the Dutch pension funds, in the Dutch pension law, there is no restraint for investment. It's more the question what are investable products and how can we get the capital in the right products. I think it's encouraging that in Europe, there a Europe Fund is being set up.
And in The Netherlands, we have the Dutch Impact Growth Fund being set up, and those are vehicles we can use to make good investments. So it's more getting the right vehicles than that there is a restraint in the law.
Luca Juncker
Yeah. So, from my perspective, I very much agree with that statement. So from our side, it's not Solvency II question. I don't think there is a need to reopen it. It's really a question around market depth, scale, and exit opportunities.
So how do we create deeper, late-stage capital markets? How do we create a stronger pipeline for IPOs? How do we reduce the fragmentation of the equity markets to increase scale, and then we can invest, of course, always respecting our first duty to policyholders matching the long term promises that we give to them.
Gaetano Pedulla'
Thank you, Chair. I'll speak in Italian.
The new pension package won't solve the problem of sustainability, security, and transparency. This is something that the parliament thinks, and if you're telling us that it's the case. We need a bit of clarity on transparency, first of all. Strategic investments are a fundamental part of the capital systems and the contribution-based pension systems. This is also key for social acceptance.
This is something that we spoke about just not so long ago, in order to open up citizens to openness to investing in the pension systems. But there's another point. The role of pension funds for SMEs is insufficient, and that's something that you've just confirmed as well. It's significant, but still insufficient. So I want to know what is the new strategy that you would propose to improve this proposal and to provide greater support specifically to SMEs.
Sébastien Comard
Okay. Question. How to increase the role of pension funds for SMEs? I think the situation in that regard is very different from one country to the next. I think, if Matt could better say about The Netherlands, but I think there are pension funds organized on the sector basis.
So they would include all firms within the sector, not just individual firms, and then the SMEs would be taken on board. I also think that in Spain, the government is implementing a reform to make SMEs and the self-employed also contribute to pension funds that are supervised by a government agency. So you can imagine a lot of different solutions to make sure that occupational pensions are available and actually offered to workers in all firms, all sizes of firms. I'm not sure that there would be a one-size-fits-all in that regard. And that's probably where the minimum amortization of the IHOP directive is an asset.
It lets national governments or even regional governments, in some cases, define what is the most appropriate solution to reach the greatest number of workers. And that really requires tailoring to the specific cities of each economy. In an economy like Italy, where there is a great number of SMEs, the solution would probably be very different from the one that you would implement in France, for instance. So there, I think, actually, the best solution for the EU level is to stay silent, really, and to let national governments take the principles of organization of IOPS and see how they can use that to make sure that when they create an IOP or when they create a framework at the national level to make sure that it reaches SMEs, that pension scheme doesn't turn into a Ponzi scheme. That's essential.
But then how concretely do you do that, I mean, imagination is key.
Patrick Gutierrez.
Patrick Oudges
Yes. Thanks. I think you touched upon an important point there with this emphasis on transparency, because transparency does have an impact. There was also earlier on a couple of mentions about, you could say, the risks surrounding transparency. We fully agree benchmarking and having transparency about cost and performance need to be done in a well designed manner, but they do have a positive impact in terms of overall performance in the market, but also consolidation in the market.
Because it's clear that if you're not confronted with how the rest of the market is doing, you think you're doing fine. And at the end of the day, it turns out that maybe your costs are too high and the value for money that you can offer to your workers, small group, can actually benefit by, could say, reaching out to other players in the market and combined forces. So what we are looking at is the two elements on the IOPS. We're working on a toolkit, as we say it. That's where we also will try to provide some elements on how you can, you could say, stimulate the different conditions, a good design of your IRAP system.
And on the PEP side, in our proposal, we also put some additional attention to workplace PEP because we do recognize that indeed in the current economic environment, we do have a lot of SMEs. We do have a lot of, indeed, workers that contract workers, you could say, that are not well protected at the moment. And we need to be able to offer them a product that is indeed easy, simple, but also reliable.
Speaker 1
Thank you. Second round of questions. One minute for the question and three minutes for the answer. And we will start with Mister Givam Tella for IPP.
Michalis Hadjipantela
Yes. Thank you, chair. Would like my question is we have heard a lot of all the speakers mentioning that we should not keep the money in savings account in the bank accounts and invest them in pension funds. My question is how can we convince the European Union citizens that with this, they will have the benefit, the citizens, and not, and we are not helping the financial intermediaries or foreign markets? And my second part of my question, because I still have time, we know that Europe is an aging population.
How can we address this in the legislation that we're trying to do at the moment? We know that, we are an aging population, and we have to address it because we don't have a lot of young people to pay for the pensions. Thank you.
You said? To everyone.
To anyone. Anyone who can answer.
Okay. Anyone.
It's okay.
Sébastien Comard
Thank you. I will start with your first question, how to convince investors that investing is in their interest and not in the interest of the intermediary. I think the key here is transparency and making sure that you have clear information about how much you invest and on the amount you invest, how much is going into fees to the intermediary for the distribution, how much is going for the management of your assets, for the management of your contracts, how much it costs in total to invest over the long term, and who gets what so that you actually know whether you are getting most of the money from the returns or whether the intermediary is taking that. I think there was a key piece of legislation or two pieces of legislation that was debated in this house in the past two years. It's a retail investment strategy with key rules on inducement, sorry, I said the word, and disclosures and reporting on the quantification and reporting of all costs and charges to be paid.
That is a key element of the retail investment strategy that is still, that we hope to see finalized soon. But we'll need to be the source of public disclosures and comparable data of the products that are being offered to investors, so that they can actually see for themselves which products are the most cost efficient, but also which are the ones that remunerate them first and the intermediary second.
Edith Matt
I don't need it. I can tell you how we do it in the Netherlands. And there are thinking I think four elements in that, first of all, pensions are a part of the labor conditions negotiated by social partners. Our IRPs are not for profit. The third is being transparent about the costs.
We are transparent about the cost, and we also ask the participants what the preferences are. And that are four elements, I think, that work very good in The Netherlands, and that make sure that we are aware that we are earning money for the participants and not for the organization.
Patrick Oudges
Yeah. I think you already heard a couple of good comments there. Just from my side to add on it, because your question is how do we convince citizens. I think there's also a role that we, policymakers, play. We need to take responsibility, and that's where it starts.
So one of the elements that is in the proposal, all the enrollment, that's a very good step. You need to make the decisions. You need to make the structure and design it in such a way that we feel we can offer something to our citizens that really helps address an issue. Then, of course, adding distrust is transparency already mentioned, but also, I would say, you could say, safeguards in the system as well, like supervisory safeguards and regulatory safeguards.
Thank you. If
I may.
Luca Juncker
Add briefly, I mean, I would like to stress the importance of advice. So, I mean, in some of the comments, advice gets a bit of a bad name. I don't think this is justified. What we see, let's say, in our experience, of course, is the way that people buy financial products has changed over the last ten, twenty years. It is today, I'd say the usual process is that people research online, that they come actually very, very prepared.
But then they still have in the vast majority a preference to buy with an adviser, to buy offline. And this is something that, I mean, is understandable. A decision about a pension product, it's a very big financial decision. There are many different choices. Do I want longevity protection?
Do I want disability protection? Do I want the guarantee? Do I want the partial guarantee? What is the level of risk I'm comfortable with? Where it is crucial to give people really a personal conversation, give them transparency about the options that they have.
So I would really want to caution against making this difficult and just seeing this as a money grab from financial intermediaries hunting for a commission. There is a real value in advice. And, of course, if you want people to provide advice, the advice needs also to be remunerated.
Thank you. For the S and D, Lara Volta.
Lara Wolters
Thank you. I think a comment first and then some questions very quickly. First of all, I think I need to echo my colleague, Dirk Hrotink, who said, it seems to be the key issue in all of this when it comes to iOrbs, not PEP, but is the uptake of them in member states, the creation of them in member states. And I think we have a habit in Europe of identifying big problems, then realizing that member states are unwilling to crack the tough nuts that need to be cracked. And so instead, what we do is we look to Europe and to the EU to do something.
And what we end up doing is sort of skirting around the edges, and that might not be enough. We need to do what we can, but, I think that is a bit of the elephant in the room. And instead, we seem to be looking to transparency and other things to sort of encourage trust. But my first question to Miss Matt is on this. What do you think are key sources of trust for citizens, for consumers?
And is transparency the right way to go? You also commented transparency might have an adverse effect. So what are your main and important sources of comfort that you think are helpful to Mr. Huches, how will you address as Iopa these straitjacket concerns that we're hearing and that might arise via performance benchmarks that you're now being asked for performance benefit statements? And within that, how do you see those sitting with the role of the social partners?
Very important, of course, in.
The Netherlands. You.
Edith Matt
Yeah. First of all, what will be helpful in trust? I think long-term policy by pension funds, but also by the government, is very important for trust. To be clear about the uncertainty that is inherent in pension products, being transparent is also very important, but it's also important to keep that balance because we also know that too much information is pushing citizens away from looking at a product or getting more knowledge about it. So it's yeah.
To make it attractive, and that's, I think, a very big challenge with pension products. I also think that for people, it is very hard to make a decision that has consequences in the long term. Procrastination is really a problem, especially with pension products. So I think auto enrollment, mandatory enrollment, and good tax incentive, are very important to create a good pension system. So I think that's also the success of the Dutch system.
Patrick Oudges
Thanks. Just before I go into the straightjacket question, because you mentioned indeed it's a it's a it's a problem at the national level, and then we because we can't make these difficult decisions, we turn to the European level. Yes. Of course, in part, that's what happened, but we also should not underestimate that there is a European dimension to the problem. Because indeed, if member states don't get their act together, we all have a problem.
It's not that The Netherlands has a good system in place, and they're safe. If the rest around them falls into the poverty trap, it has economic consequences that will hit all of us. And it will touch deeply on the social fabric of Europe, who we are as Europe, because we would not be able to protect our own citizens against poverty. So there is a European dimension to it. Having said that, the solutions indeed are national because they are very much embedded in the national system.
There's interaction with the other social security systems. So, therefore, we think that some of the ideas that we can bring forward need to be principle based, and we need to learn how to embrace principle based regulation. We're not very good at it also because we get from our counterparts always the question, but what do you mean exactly? Can you explain to me what your expectations are in detail so that I know that I can tick the box when I'm, you could say, doing the work? No.
It needs to be principle based, but there needs to be a clear agreement on some basic principles on how to inform your citizens, what information they receive. Indeed, it's not an easy solution to provide good pension information, because it is simply complicated. But, again, we don't have to reinvent the wheel 27 times. We can learn from each other. We can share information.
Having a dashboard, having, you could say, principles of how a tracking system should look like, having the three pillars covered. These are basic points that we can agree with each other because it will help, at the end of the day, to address a problem at a national level that also, at the end of the day, is a European problem.
Speaker 37
Thank you. Any catchy eyes? No? Okay. So I will give the floor back to the speakers.
Speaker 1
Thank you so much, by the way, for answering all of the questions. And you will have one point minutes for some concluding remarks. And maybe we will start with Mr. Juenka for Alliance.
Luca Juncker
Yes. So thank you very much again for the opportunity to speak. I would like to reiterate my main message. So in order to close the pension gap, a policy must start with what the citizens want. And from our perspective, therefore, the most important piece is to offer choice through a flexible framework, avoiding highly detailed product standards, but instead giving the freedom really to respond to consumers' preferences.
Thank you.
Sébastien Comard
Thank you, madam chair. Yeah. Just to conclude, I wanted to come back to comment that mister Juukan made earlier about financial advice. We are often the ones giving a bad name to financial advice. Actually, what we often mean is we don't want biased, poor quality financial advice, but we are all in favor of high quality, bias-free financial advice, and that has a major role to play in the third pillar of pension, and that's essential to enable people to invest in confidence, including in more risky plans, more risky assets, and really develop an equity culture in Europe.
But we must make sure that the framework on financial advice is strong enough, with the right principles, so that when people go to a financial adviser, they do so with confidence. Thank you.
Thank you. Edith Matt.
Edith Matt
Yeah. I think the proposal of the commission is in the right directions. We support this proposal, and I think we ask for, beware of the balance in the proposal. And I think the principle-based is a really good basis for that. So be aware of too much detail in the proposal.
Thank you.
Patrick Oudges
Yeah. Many things. I think I spoke already quite a lot, but maybe just to finalize with a couple of words, I think truly what I see also, I think there's a lot of alignment that we see the problem. There's also a lot of alignment on which direction we need to go. But what I still sense often and which I think we really need to, you could say, address is that Europe and a more European market is not a risk, is not a threat to national systems.
And I literally hear that sometimes, that people are afraid that more open markets, more Europe, will mean the end of their system. It's the opposite. It will mean more thriving economies, and all participants in that market benefit from it. I think it's the mindset that we need to change a little bit. And if we want a more investment-rich culture in Europe, let's start here.
Let's start accepting that, yes, we have some risks if we go in a different direction, but embrace it as opportunities and start taking actions, doing something because we know the problem. It is identified. Let's work on building solutions.
Speaker 39
Thank you very much, everybody, and thank you very much to the whole panel and all of the questions that have been raised. And these questions have all been raised in a very fair way. We all have very different pension systems. I'm from France myself, and I think that here, we've been able to talk today in a very open way, in a very European way, without focusing too much on our national systems. Obviously, some countries have very developed pension funds, others don't.
So I'd like to thank all of the panelists. Thank you very much to everybody who's organized this hearing, and thank you to the secretariat of the Econ Committee and all the interpreters. And thank you very much to all members of the Econ Committee for the quality of this debate. Thank you.
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