Between the Draghi Report and the Savings and Investment Union

In principle, the design of pension policy within the Member States of the European Union remains a purely national matter. However, the European Union is increasingly assuming a more active role and seeking to influence national systems. As pension expert Niko Väänänen of the Finnish Centre for Pensions (ETK) aptly described in his article “European pension policy in transition”, the Draghi Report, the Savings and Investment Union, and the operation of the Recovery and Resilience Facility (RRF) represent a decisive turning point in this development.

Pension policy has long been an integral part of European policymaking. Statutory pension insurance is one of the so-called parafiscal institutions. Despite its organisational autonomy, it is functionally part of the public finances, as it fulfils state responsibilities in the field of social security. Consequently, it is also subject to the coordination rules of the Economic and Monetary Union. Projected expenditure of statutory pension insurance systems is included in the assessment of fiscal stability to which the Member States have committed themselves. Although the concrete design of measures remains the sole responsibility of the Member States, the EU is increasingly seeking to exert influence on the systems themselves.

A new EU pension policy

According to Väänänen, European pension policy has so far focused primarily on ensuring the free movement of workers without disadvantaging them in terms of social security. For more than 50 years, the coordination rules of the social security systems have guaranteed this. Väänänen notes, however, that the concept of “EU pension policy” is now being interpreted more broadly and increasingly encompasses initiatives and measures at Union level that directly target the design of the Member States’ pension systems.

A recent example is the Commission-led initiative “Savings and Investment Union”, which aims to promote the development of funded supplementary pensions across the EU. The Draghi Report criticises the lack of long-term capital in European capital markets — a shortage that is also attributed to the limited scale of funded pensions. It therefore calls for greater fiscal space within national budgets to enable forward-looking investment. Furthermore, it advocates the expansion of funded supplementary pensions to strengthen European capital markets and make more capital available for investment. While this demand primarily concerns supplementary old-age provision, it also includes the call to build up additional reserve funds within the pay-as-you-go first-pillar systems.

Recovery and Resilience Facility

As a further example of the EU’s increasing influence on national pension policy, Väänänen refers to the Recovery and Resilience Facility (RRF), which was established in response to the COVID-19 pandemic. In cooperation with the European Commission, the Member States agreed, within the framework of national recovery plans, on reform objectives aimed at fostering green economic growth, with funding linked to these goals. The Commission monitors the progress of these reforms and ties the disbursement of financial resources to the achievement of specific milestones. As a result, for instance, Spain and Belgium have implemented pension reforms as part of their recovery plans — a concrete example of the EU’s emerging steering role in this policy area.

European Commission as Gatekeeper

Although the national recovery plans are formally based on the priorities of the individual Member States, Väänänen notes that the Commission is increasingly assuming the role of gatekeeper for pension reforms. In practice, it effectively decides on the disbursement of RRF funds by reviewing and monitoring the implementation of the agreed national measures. With the planned Multiannual Financial Framework (MFF) for 2028–2034, this role could be further expanded. In its initial proposals, the European Commission refers to the positive experiences from the RRF and suggests bundling future fund disbursements from various programmes and funds into 27 National and Regional Partnership Plans (NRPP). These plans would be linked to the achievement of jointly agreed objectives and, potentially, to the implementation of country-specific recommendations from the Commission and the Council. This would indeed represent a turning point in the EU’s approach to pension policy.