European Court of Auditors Highlights Challenges in Cross-Border Pension Systems

The European Court of Auditors has expressed concerns regarding the slow progress in establishing effective cross-border pension products within the European Union. Despite the EU's efforts to create a regulatory framework for occupational pensions and private retirement plans, the Court noted that these initiatives have not met expectations, particularly in terms of providing secure pension options that span multiple countries.

According to the Court's findings, both company-sponsored and EU-wide private pension systems are failing to gain traction, especially when it comes to offering reliable coverage across borders. Mihails Kozlovs, a representative of the Court, emphasized the necessity for additional measures to enhance the effectiveness of these pension schemes.

While individual EU member states retain authority over their pension systems, the European Union has put in place foundational guidelines intended to facilitate cross-border retirement savings. Nonetheless, the European Commission and the European Insurance and Occupational Pensions Authority (EIOPA) have struggled to fortify the role of occupational pensions within member states or to promote the so-called Euro-pension effectively.

Currently, the Court reports that there is minimal engagement with cross-border occupational and European pension products, despite the introduction of several initiatives by the European Commission to improve private retirement savings. These efforts include a proposal presented in March aimed at developing and enhancing private pension options across the EU.

The assets managed by occupational pension schemes are substantial, estimated at around EUR2.8 trillion, providing coverage for approximately 47 million employees and retirees. However, these schemes are predominantly active in a limited number of countries where employer-sponsored pensions have historically been significant. Factors beyond the EU's control have contributed to this limited engagement, and the Court pointed out that additional regulatory requirements imposed by the EU may further disadvantage cross-border pension funds.

The Euro-pension, introduced in March 2022, is intended to offer an alternative retirement savings product for workers wishing to set aside funds for their retirement, even if they move to another EU country. However, the Court has identified that the lack of tax incentives and the imposed cap of 1% on fees and expenses make this product less attractive to potential savers. To date, there has been only one such pension product on the market, serving fewer than 5,000 savers and managing assets of less than EUR12 million, indicating a lack of uptake.

In its report, the Court stresses the importance of providing citizens with comprehensive pension information, particularly as they approach retirement age. Unfortunately, the EU's plans to enhance transparency within the Capital Markets Union have not yet yielded significant results. Many insured individuals still lack a comprehensive overview of their statutory, occupational, and private pension provisions, which hampers their understanding of future retirement benefits.

Overall, the European Court of Auditors concludes that the Commission and EIOPA have yet to implement effective measures to deepen the internal market for occupational pensions. The auditors are urging the European Commission to revisit and revise EU regulations by 2027 to facilitate better cross-border pension solutions.