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The EU has failed to grow private sector pensions to ease the fiscal strain of an ageing population, the bloc’s external auditor has warned.
A flagship cross-border pension product launched by the European Commission amid great fanfare three years ago has attracted only 5,000 users and less than 0.0002 per cent of its €700bn assets target, the auditor found.
The critical conclusions published in a report on Wednesday by the European Court of Auditors are a setback for the EU as it makes a fresh push to mobilise the region’s vast pool of household savings and channel them into productive investments.
The European Commission and the bloc’s pension regulator have “not been effective so far in strengthening the role of occupational pensions . . . and establishing a pan-European personal pension product,” the auditor said.
Many EU countries, such as Germany and France, rely on state pension systems to provide people with an income in retirement. On average, EU countries spend about 12 per cent of GDP on supporting public pension schemes.
But this strain will grow as the share of the EU population aged over 65 is forecast to rise from about 20 per cent to 30 per cent by 2050, according to the commission.
“In EU economies faced with demographic and fiscal challenges, supplementary pensions should become increasingly important,” said Mihails Kozlovs, the member of the auditor who oversaw its report.
“Unfortunately, neither employer-sponsored pensions nor the EU-wide personal pension have lived up to expectations, especially when it comes to cross-border operation,” he said. “Extra steps must be taken to strengthen them.”
Last year, Germany spent €127bn on pensions — a quarter of its federal budget — and Berlin is raising extra debt to finance a planned €200bn fund to avoid cutting pensioner incomes.
“Given ageing demographics, inflation indexation, and electoral realities, governments are finding it difficult to constrain rising pension expenditure — and these remain an important consideration for the credit ratings of many European sovereigns,” said Frank Gill, lead sovereign analyst in Europe, Middle East and Africa at S&P Global Ratings.
In 2022, the EU launched a pan-European personal pension product (Pepp), expecting it would attract €700bn of savings by 2030 by offering a simple, low-cost retirement plan that was portable across the bloc.
However, since then just one company — in Slovakia — has taken up the product and by 2023 it had attracted only €11.5mn of savings from 4,747 customers.
The auditor attributed the low take-up of the Pepp to the lack of harmonised tax incentives for the product and a 1 per cent cap on annual fees that meant “there are few incentives for financial institutions to offer such a product”.
EU workplace pension schemes are estimated to have about €2.8tn of assets under management and about 47mn members. However, the report said these were concentrated in a few countries that have a tradition of private pensions, such as the Netherlands and Denmark, and the cross-border pension sector remains tiny.
There were only 28 occupational pension funds operating across EU borders, representing 0.2 per cent of total members and 0.4 per cent of total assets in the sector, the auditor said.
Most of these “are concentrated in only a few countries, mainly Belgium, and are mostly multinational companies providing occupational pensions to their employees across Europe,” the report found.
The European Insurance and Occupational Pensions Authority, the Frankfurt-based regulator, has been “hindered by the fact that it cannot propose technical standards and makes limited use of other tools at its disposal” to promote private sector pensions, the report added.
