Supplementary Pensions and the SIU: Bridging Capital Markets and the Welfare State in Europe

Europe needs investment. As is well known, the Draghi Report estimates that the EU requires an additional EUR 750-800 billion per year to meet its growth and competitiveness objectives. Yet, vast amounts of European savings remain largely disconnected from the EU capital markets. The Savings and Investments Union (SIU) strategy, launched by the European Commission, aims to bridge this gap, also through the supplementary pensions system.

In a recent article published in the Revue trimestrielle de droit financier (RTDF) (2026/1), I focus on the European Commission’s reform proposals for supplementary pensions and their impact on EU financial markets. The article argues that the pension system—particularly supplementary pensions—is no longer only a matter of social security, but also a crucial element of EU capital markets policy.

The Current Landscape of Supplementary Pensions 

The case for strengthening supplementary pensions rests on two pillars: social protection and capital market development. 

As regards the first pillar, it must be noted that public pension systems across Member States are facing mounting demographic and economic pressure, as confirmed by the Commission’s Communication of November 2025—Enhancing the capacity of the EU supplementary pension sector to improve retirement income and supply long-term capital to the EU economy. According to Eurostat, between 2024 and 2100, the share of the population that is of working age is expected to decline, while older people will probably account for a larger share of the total population: those aged 65 and above will account for 30.5% of the EU’s population by 2070, compared with 21.6% in 2024.

These trends put a strain on public finances and are forecast to lead to lower pension replacement rates in most Member States, rising inequality, and intergenerational imbalances. As the share of retirees in the population continues to grow, supplementary pensions can help maintain adequacy while easing budgetary pressures.

As for the second pillar, pension funds, as long-term investors, are by default important providers of patient and stable capital to financial markets. However, their potential is still untapped. According to EIOPA’s 2024 Consumer Trends Report, in fact, only around 20% of EU citizens participate in an occupational pension scheme, and just 18% own a personal pension product. Coverage is particularly low among younger workers, women, part-time and lower-paid employees, and the self-employed. This represents both a social security failure and a missed opportunity for capital markets development.

The Commission’s Communication on EU supplementary pension sector

The Commission’s Communication of November 2025 seeks to address the weaknesses outlined above through a combination of recommendations to Member States and proposed amendments to the IORP II Directive and the PEPP Regulation. Certain aspects deserve particular attention.

First, pension tracking systems and pension dashboards will improve transparency for EU citizens and policymakers. Second, the European Commission recommends the adoption of an automatic enrolment mechanism in supplementary pension schemes, with an opt-out regime, thereby creating a framework capable of substantially increasing participation rates and, by extension, the volume of capital channelled into financial markets on a stable long-term basis. Third, the proposed amendments to the IORP II Directive and to the PEPP Regulation seek to modernise occupational pension schemes and products, promote cross-border scalability, and improve governance and efficiency. For the PEPP, the Commission’s proposal includes ways to ensure that PEPPs deliver value for money while maintaining a robust protective framework for retail investors.

From Rule to Principle: Rethinking Prudent Investment

The shift from a prudent person rule to a prudent person principle governing pension fund and PEPP investment strategies is one of the most important elements of the proposed framework. Under the current system, the prudent person rule has been interpreted and implemented very differently by the Member States, often resulting in overly restrictive investment constraints that limit portfolio diversification and equity investment.

The proposed prudent person principle is conceived as a flexible yet demanding fiduciary standard that does not prescribe a specific asset mix but instead emphasises the responsibilities and duties of pension providers to act in the long-term interest of the beneficiaries of pension schemes, taking due account of both returns and risks inherent in the pension assets.

Under this approach, equity investments are not inherently imprudent and may constitute an essential component of a well-diversified, long-term pension portfolio, provided that risks are properly identified, measured, and managed.

This shift carries significant implications for the development and liquidity of EU capital markets and may help redirect substantial supplementary pension savings toward productive investment, thus supporting the SIU’s broader objectives.

Supplementary Pension as a Core Element of Financial Market Law

The proposed new framework outlined by the Commission seeks to design a system in which supplementary pensions play a crucial role in EU financial markets. Pension funds and other pension products may effectively become a stable and patient source of support for financial markets and, ultimately, for the real economy. To this end, the new approach to investment strategies—moving from a rule-based to a principle-based paradigm—is of the utmost importance and deserves close attention from financial law scholars and market participants alike.

The author’s article is available here.

Federico Riganti is an Associate Professor of Economic Law and Financial Market Regulation at the University of Turin.