Questions and answers on the supplementary pensions package

Why are you proposing this package on supplementary pensions?

The demographic landscape is shifting dramatically, with profound implications on pension systems and retirement planning of Europeans. As populations age and labour force shrinks, it is crucial to ensure that individuals can maintain an adequate standard of living in retirement. Public pension schemes form the backbone of retirement systems across all Member States. However, with populations ageing rapidly, workforces shrinking, and non-standard employment becoming more common, it is increasingly important to foster opportunities that enable citizens to achieve more adequate and diversified retirement income.

Supplementary pensions – occupational and personal pension schemes – play an important role in this. By adding to public pensions, they can help ensure that retirees can maintain a decent standard of living.

The role of supplementary pensions has been growing. However, the supplementary pension sector remains underdeveloped in many Member States. According to the European Insurance and Occupational Pensions Authority (EIOPA), only 20% of Europeans participate in occupational pension schemes, and just 18% have a personal pension product. This puts many people at risk of a significant drop in income when they retire, which could negatively affect their quality of life.

As outlined in the Savings and Investments (SIU) Strategy, a more developed EU supplementary pensions sector can play a key role in improving financial security for citizens during retirement. At the same time, it will boost long-term capital and support EU capital markets, thereby helping to deploy investments to finance EU growth and innovation.

What is the Commission proposing on supplementary pensions?

The European Commission has today adopted a package of measures to ensure adequate retirement incomes for EU citizens by expanding and strengthening the supplementary pensions sector. The objective is to complement - not replace - public pensions.

The package includes a Commission Recommendation to Member States on:

• Pension tracking systems, which will give people a better overview of their pension entitlements and projected benefits, helping them plan for their retirement.
• Pension dashboards, which will give policymakers a comprehensive and more granular view of the sustainability and adequacy of the pension systems, comprising both public and supplementary pensions.
• Auto-enrolment into supplementary pension schemes, under which workers are signed up to supplementary pensions plans, unless they choose to opt out, thereby remaining free to decide.

The package also includes two legislative proposals covering areas already subject to EU financial market regulation:

• An amending Directive on Institutions on occupational retirement pensions (IORP II) to make IORPs work more efficiently and at scale, while lifting undue constraints on investments, subject to reinforced supervision. These measures will help these schemes reduce costs and maximise value for citizens.
• An amending Regulation on Pan-European personal pension products (PEPP) to make this personal pension product more attractive for savers and financial market participants.

The package is also accompanied by a Commission communication clarifying the standard for those managing pension schemes' assets (the Prudent Person Principle) to ensure that equity investments by supplementary pension schemes are not discouraged. This will help citizens achieve higher long-term returns on their savings and free up new sources of financing for the EU economy.

Who will benefit from the proposed measures and how?

Ultimately, all of society should benefit from improved access to more effective supplementary pensions.

First and foremost, citizens will benefit from greater opportunities to increase retirement income, allowing them to achieve higher financial security and stability in retirement. This will help protect living standards when retiring and strengthen the economic resilience of EU households, especially in light of current demographic challenges and shifting labour market dynamics, including those for which supplementary pensions coverage is particularly low, notably women, younger workers, part-time and lower-paid employees and the self-employed. For example, the gender pension gap between men and women currently stands at 24.5%

Further, stronger supplementary pension schemes have the potential to mobilise long-term savings into productive investments, boosting the EU's competitiveness and prosperity, providing jobs and supporting economic growth. A more vibrant supplementary pension sector can serve as a provider of long-term capital for companies, including innovative ones, and help unlock financing for EU strategic priorities, such as the green transition, innovation, as well as security and defence.

Finally, more robust supplementary pensions can help ease the pressure on the sustainability and adequacy of the public pension sector by ensuring citizens have more diversified incomes in retirement.

What is the role of the EU in promoting supplementary pensions?

Pensions, and the structure of pensions systems, remain primarily a Member State competence. This package is not changing that. It is up to Member States to introduce the necessary arrangements to develop their own supplementary pension sectors and make it easier for citizens to access them.

The EU can play a supporting role by providing guidance as to examples of best practice that can help boost supplementary pensions across the EU. This is the objective of the Recommendation on pension tracking systems, pension dashboards and auto-enrolment.

In addition to national legislation, EU rules such as the Directive on institutions for occupational retirement provision (IORP) and the pan-European Personal Pension Product (PEPP) Regulation, set important common standards across the single market in the areas of occupational and personal pensions.

What is the current state of the supplementary pensions sector in the EU and how does the supplementary pensions system vary across Member States?

The relevance of EU occupational and personal pensions is uneven across Member States, with only about one in five EU citizens participating in an occupational scheme and even fewer holding personal pension products.

In practice national systems vary widely: pensioners in some countries already benefit from a large contribution of supplementary pensions to their retirement income, especially if there are well-developed occupational funds with high coverage and large assets under management. In other Member States, people rely more heavily on “pay-as-you-go” state pensions, whereby current workers' contributions are used to fund the pensions of current retirees, with limited occupational pensions coverage.

There is no “typical” EU pension system, nor is there a one-size-fits-all solution to boost supplementary pensions that can be uniformly applied to each Member State. That is why we have published a Recommendation with best practices that Member States can adapt as they see fit to their domestic conditions.

What are pensions tracking systems and what are you proposing in this area?

Pension tracking systems are online platforms which can offer individuals an overview of their pension entitlements and projected benefits, ideally across all different pension schemes and providers. By enhancing transparency and pension awareness, these systems help and encourage citizens to take informed decisions about their career, retirement and savings.

However, existing pension information services in most Member States remain fragmented across different pension pillars and often offer incomplete coverage. Drawing on positive national experiences, the Commission recommends that all Member States set up or expand national pension tracking systems, covering pension entitlements from all pension schemes, across all pillars (public, occupational and personal pensions). This service should be free of charge for individuals.

What are pensions dashboards and what are you proposing in this area?

Pension dashboards provide policymakers and other key stakeholders with an overview of the adequacy and sustainability of national pension systems, consolidating key indicators such as coverage, contributions, retirement income across different population groups, and fiscal costs. This supports evidence-based policy design, helping to build public trust in pension systems and to guide reforms.

The Commission recommends Member States to develop national dashboards, exploiting synergies with pension tracking systems. Those national dashboards should ultimately feed into an EU-level pension dashboard, which would facilitate cross-country comparisons, mutual learning, and better-informed reform strategies.

What is auto-enrolment? What are the benefits?

‘Auto-enrolment' is a mechanism by which workers are automatically included in supplementary pension schemes, with the possibility of opting out if they choose to do so. This approach addresses low participation rates in supplementary pensions, which often result from limited financial awareness and individuals' tendency to postpone decisions concerning their retirement. It can increase coverage, especially among young people, lower-income groups and women, and help build long-term financial security while still allowing individuals to opt out if they choose to do so.

Auto-enrolment has proven effective in boosting participation rates in supplementary pensions, as well as assisting with improving rates of pension adequacy for future retirees. Evidence from countries like the United Kingdom and New Zealand shows that individuals, once enrolled, tend to remain in the schemes. Ireland plans to introduce auto-enrolment in 2026 and expects a strong take up, while Italy and Poland have already implemented similar systems, observing gradual but steady increases in participation over time.

The possibility to opt-out characterises auto-enrolment, which is a main difference to mandatory participation. Some Member States have already made participation in supplementary pension schemes mandatory. The Commission's recommendation is not aiming to disrupt those mandatory systems that provide an effective supplementary pension coverage. There may, however, still be a role for auto-enrolment in these Member States for self-employed or for employees not covered by mandatory participation, for example, because they work with atypical work contracts or in sectors not covered by collective wage agreements through which participation is made mandatory.

By increasing participation in supplementary pensions, thereby accumulating financial wealth through regular contributions of individuals and their employers, auto-enrolment can significantly contribute to ensuring adequate retirement income amid ageing populations and to reducing long-term pressure on public pension systems.

What are you proposing in the review of the IORP (Institutions for Occupational Retirement Provisions) II Directive?

An institution for occupational retirement provision (IORP) is a pension fund or similar body that manages retirement savings for employees or self-employed workers on a funded basis, operating independently from the employer. It provides occupational pensions in line with the arrangements set out under national law.

The IORP II Directive has established key common standards to ensure sound management of IORPs while respecting national specificities, including the role of social partners. However, many schemes remain too small to diversify their investments and to deliver optimal outcomes for savers.

The objective of the review is to strengthen and modernise the framework for occupational retirement provision, drawing on EIOPA's technical advice and input and on the good practices identified across Member States.

One aim of the reform is to make IORPs work more efficiently and at scale, helping these schemes deliver long-term value for savers. The review will remove barriers to market-based consolidation of IORPs, by simplifying cross-border procedures and transfer rules. The proposal will also reinforce supervisory cooperation between authorities, as well as strengthen supervisory oversight through a regular supervisory dialogue between authorities and IORPs on structural challenges, risk management, efficiency and long-term sustainability.

Another aim of the reform is to increase trust in occupational pensions. The proposal updates authorisation and supervisory processes to ensure consistent prudential assessments and effective oversight on IORPs from the outset. The proposal enhances governance and risk management standards, with reinforced fit and proper requirements, clearer responsibilities for key functions, and regular stress testing for IORPs that are not subject to risk-based capital requirements. The proposal will improve transparency, information and accountability towards beneficiaries and will enhance connectivity to pension tracking systems. In sum, the review will ensure the EU framework continues to provide a solid and future-proof foundation for sound governance, risk management, and member protection, while keeping it proportionate and flexible.

The proposal also modernises the existing option for Member States to apply the IORP framework to other funded retirement institutions not otherwise covered by EU prudential legislation, ensuring coherence while respecting national diversity.

The reform keeps unchanged the fact that the IORP II Directive remains a minimum harmonisation directive, with no one-size-fits-all model, respecting national competences and the role and autonomy of social partners.

How will members and beneficiaries benefit from the improved proposal on IORPs?

Proposed changes aim to increase trust in and efficiency of IORPs, which will benefit savers planning for their retirement. Changes that remove barriers to building scale or pooling assets can reduce costs and diversify IORPs investments, including in equity, thereby maximising value for savers.

Beneficiaries will also benefit from the improved transparency and communication, including reinforced information rights throughout the accumulation phase (period when individuals build their pension savings through contributions) and decumulation phase (when individuals start draw income from their pension savings). Moreover, the framework introduces a new requirement for IORPs to always act in the best interest of their members and beneficiaries and to link it to pension tracking systems to improve transparency and awareness of entitlements. Increased supervisory oversight will also contribute to building trust.

What are you proposing in your review of the PEPP?

The review of the PEPP Regulation aims to make the pan-European Personal Pension Product more attractive and accessible for both savers and providers. Stakeholder feedback has shown that certain design features have limited market uptake (see following question).

The revised framework therefore introduces greater flexibility for providers, while maintaining strong standards on transparency, cost disclosure and investor protection. It will make PEPPs better suited to workplace and auto-enrolment schemes, ensure consistent tax treatment between PEPP and other personal pensions offered at national level, and encourage competition and innovation.

Overall, the review seeks to turn PEPP into a genuinely European, cost-effective and flexible long-term savings product.

How do you explain the limited uptake of the PEPP so far?

There are various reasons behind the low take-up of the PEPP. Based on the feedback received from stakeholders, the Commission has identified certain design features that have limited the distribution and uptake of the Basic PEPP. These are the 1% fee cap that was intended to restrict costs in combination with the mandatory advice requirement and the requirement to offer national sub-accounts for at least two Member States. Also, the detailed requirements on how PEPP should ensure limited risk of capital loss for PEPP savers have proven excessively burdensome for potential PEPP providers to implement. These conditions have made the PEPP less attractive for providers and distributors to offer compared to other personal pension products available at national level.

In addition, in some Member States the PEPP does not benefit from national tax and other incentives that apply to comparable supplementary pension products. Finally, one of its key potential advantages, the portability of the PEPP across the EU, has not proven sufficiently appealing to create significant demand.

What are the differences between a “basic” PEPP and “tailored” PEPP?

When it comes to the Basic PEPP, the objective is to make it a standardised affordable, accessible, and simple pension product suitable for non-advised sales online. The review will remove the existing fee cap and mandatory advice requirement. When advice is provided in relation to the distribution of the Basic PEPP, the review will ensure it is provided on an independent basis and upon request of PEPP savers only. To ensure investor protection, it includes a lifecycle investment approach. This means that the risk is gradually reduced as the saver approaches retirement. To make it cost-effective for pensioners, the reform will require that at least 95 % of the assets of the Basic PEPP be invested in non-complex assets, such as shares, exchanged-traded funds (ETFs), or later bonds. Considering the long-term nature of the product and the need to enhance diversification, it will allow PEPP providers to allocate the remaining 5% to other assets, including unlisted equity and infrastructure. This will improve the diversification of the portfolio and can boost return over the long term.

In addition to the Basic PEPP, providers can offer ‘tailored' PEPPs that may include guarantees and more complex asset allocation strategies, requiring advice to ensure consumer understanding. ‘Tailored' PEPPs are important as they ensure that providers can design products that reflect the preferences, circumstances and risk profiles of different PEPP savers.

To give providers more flexibility, it is proposed to remove the current obligation that Basic PEPP and tailored PEPPs must be offered by the same provider. Furthermore, the proposal provides for other simplifications measures, applicable to both the Basic and tailored PEPP, including the removal of the requirement to offer national sub-accounts for at least two Member States upon request and proposes to repeal the stringent quantitative requirements applicable to implementation of risk-mitigation techniques.

To make sure both the basic and tailored PEPP are cost-effective and deliver value for savers, the proposal strengthens product and oversight governance rules, by aligning them with those set out under the Insurance Distribution Directive as proposed in the context of the Retail Investment Strategy.

The money invested in the PEPP becomes available at retirement and different forms of payout structures are possible, also depending on national law.

To ensure a level playing field between the PEPP and national personal pension products, the proposal includes, as an ancillary measure, a requirement for Member States to ensure that PEPPs receive comparable tax treatment and are subject to the same incentives as those granted to national personal pension products.

The proposal clarifies the possibility for employers to voluntarily contribute to PEPP and that Member States may allow PEPP to be used as eligible scheme for auto-enrolment where this is in line national social and labour law and does not interfere with the existing occupational pension schemes.

What is the prudent person principle and what are the clarifications you are bringing?

The prudent person principle governs how pension providers should invest and manage their asset portfolios. It means that investments must be made in the best long-term interests of members and beneficiaries, taking account of risks, diversification and security. However, the principle has been interpreted and implemented very differently across Member States. These differences have often limited how pension schemes can diversify their investments or invest in equities, with negative effects on their ability to deliver adequate retirement income.

The Commission's Communication provides guidance on how this principle should be implemented. It underlines that all pension schemes should act in the best long-term interests of members and beneficiaries, and not only those regulated under the IORP II Directive and the PEPP Regulation. The Communication also clarifies that equity investments should be considered by all pension schemes as part of their portfolio. Larger funds, with sufficient scale and risk absorption capacity, should also consider private assets, such as private equity, venture capital and growth equity funds, as part of a well-diversified investment strategy that supports long-term returns to their members and beneficiaries.

This clarification will ensure that equity investments by supplementary pensions schemes are not discouraged, thus helping citizens earn higher long-term returns on their savings and freeing up new sources of financing for the EU economy.

How will the Commission monitor the effectiveness of the proposed measures?

The Commission will monitor the implementation and effectiveness through several mechanisms, including the European Semester. It will promote the exchange of experiences and best practices between Member States.

The Commission is ready to work with the co-legislators to achieve swift political agreement on the two legislative reforms.

An assessment on the proposed measures will also be conducted as part of the midterm review of the Savings and Investments Union (SIU) strategy, which will be published in 2027.

What are the next steps?

The review the PEPP Regulation and the IORP II will now enter the legislative process, with the proposals transmitted to the European Parliament and the Council for examination and discussion.

As for the Recommendation, the Commission will facilitate exchanges of experiences and best practice between Member States to keep the issue high on the policy agenda. The Commission will also encourage Member States to report on the measures taken to implement the Recommendation through the existing monitoring processes, including the SIU-related processes, the Eurogroup framework for monitoring national reforms and the European Semester process.

For more information

Press release