Pension policy back in focus.

On 8 July, the ministers for economic and financial affairs of the EU Member States adopted country-specific recommendations on economic, social, employment, structural and budgetary policies in the Economic and Financial Affairs Council (ECOFIN). The Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) had already discussed the recommendations on 19 June. As already called for in last year’s recommendations,  Germany will reduce the federal subsidy. In order to ensure the long-term sustainability of the pension system while also guaranteeing an adequate level of pensions, measures will include promoting longer working lives and reducing incentives for early retirement.

Competitiveness and investment are key priorities

The country-specific recommendations are based on the European Commission's country reports. These assess economic, employment and social developments in the individual Member States in line with the priorities set out in the Competitiveness Compass. The Compass, presented on 29 January, is based on the analyses and recommendations of the Draghi Report and the Letta Report, and sets out three pillars for strengthening competitiveness in Europe: (1) promoting innovation, (2) facilitating access to clean energy, and (3) reducing economic dependencies. One cross-cutting measure is the training of skilled workers. The importance of social security for the functioning of the internal market, as emphasised in the Letta report, and the importance of social investment for Europe's competitiveness are not included in the Compass.

Fiscal scope for future-oriented investments

The country report for Germany identifies insufficient public investment as a key challenge. In line with last year's recommendations, the level of federal subsidies is therefore criticised. In order to increase the fiscal scope for future-oriented public investment, it is recommended that federal transfers from the federal budget to the pension system be reduced. In addition, the country report suggests examining the establishment of individual or national investment funds. As already emphasised in the Draghi report, these could help finance the pension system and channel long-term savings into private investment. The lack of a funded pillar to complement the existing pay-as-you-go pension system has a negative impact on the sustainability and adequacy of the pension system, but also on private investment in equities, companies' access to finance, and growth and innovation.

The country report identifies the fact that well-educated and healthy people often leave the labour market early as a problem for competitiveness. Overall, half of all employees leave the labour market before reaching the statutory retirement age, almost a third of them without any reduction in their pension entitlements. Accordingly, the recommendation is made to reduce incentives for early retirement. Alongside the recommended adjustment of pension indexation and revision of the upper contribution limits, this would improve the sustainability of the pension system.

Adequacy reduced to poverty reduction

Looking at the country-specific recommendations for all Member States, it is clear that the focus of the 13 recommendations issued in the area of pension provision continues to be on financial sustainability. This includes measures such as raising the retirement age and limiting early retirement. A new addition to the recommendations on pension provision is the recommendation on public and private investment in Germany, the Czech Republic and Lithuania. However, four countries – the Baltic states and Croatia – have also received a recommendation to reduce poverty and inequality through more adequate pension benefits. The common goal of ensuring an adequate standard of living through pension insurance was not formulated in any country-specific recommendation.

Savings and Investments Union

Starting in the next European Semester in 2025/2026, the Savings and Investments Union is to be gradually integrated into the Semester. This strategy, presented in March 2025, aims to boost economic growth and competitiveness in the EU. The aim is to channel private capital more efficiently into long-term investments and strengthen capital markets. The focus on funded elements of pension provision could therefore increase in the future.