Opinion: Laurent Doubrovine, Chair, Personal Insurance Committee, Insurance Europe and Head of Partnerships & Corporate Business Development, Société Générale Assurances, France
Insurance Europe’s 2023 Pension Survey confirmed that over a third of Europeans are not saving for their retirement. Without sufficient savings, individuals may face financial insecurity during retirement resulting in a reduced quality of life or inability to afford healthcare costs. An excessive reliance on social welfare may put undue pressure on public finances, especially during a time of increasing ‘age dependency ratio’. With a new European Commission about to take office, now it is time for a critical reflection on how Europe can contribute to addressing the situation.
The pension challenge has reached a critical juncture. In addition to demographic changes and the dwindling ratio of active population to retirees, the labour market is undergoing profound changes. Non-linear careers are becoming more frequent, linked to the clear shift towards more service-oriented economies and new types of employment. The demographic changes in combination with evolving labour market realities are having a strong impact on both pension contributions and the stability of funding sources.
There is no silver bullet to solving the pension challenge, so it needs a range of different measures. One thing is clear: people will need to save more to have a comfortable living standard after retiring. The insurance industry can contribute to this objective as life insurers are major providers of both occupational and personal pensions, thereby complementing state-funded pensions.
A unique element of insurance pension products is that they often offer future pensioners a minimum return guarantee, giving individuals peace of mind about their financial future. This is key, because safety and security are the main priority for many pensions savers, confirmed by Insurance Europe’s Pension Survey which showed that this is the case for 44% of respondents. This was the same result in similar surveys conducted in 2019 and 2021.
How to increase the number of people saving for retirement?
Insurers’ role extends beyond mere product offerings. For instance, many insurers are involved in awareness raising and educational campaigns, such as targeted communication efforts workplace seminars about the risks of delayed action and the benefits of early retirement savings. Such efforts are pivotal, as Insurance Europe’s survey results indicated that 14% of the respondents are interested in saving but would need more information to get started.
Digitalisation also offers interesting perspectives. For instance, digital tools and user-friendly applications increasingly offered by insurers can encourage saving by helping policyholders assess and forecast their financial situation, set realistic retirement goals, and create a personalised savings plan.
IORP II Directive
While all these are interesting steps insurers can and should take, addressing the pension challenge also requires action by public authorities at both national and European levels. This is the case notably in three areas: awareness raising, auto-enrollment, and tax incentives. Awareness raising is particularly important. Here, the goal should be to ensure that all over Europe, citizens have access to accurate and easy to understand information about their future pension entitlements, helping them make the right choices, in line with their own circumstances. This is already the case in a few countries, but, unfortunately, not everywhere. The European Commission has a role to play, notably by pointing to good practices and encouraging all member states to move forward.
Second, member states should consider implementing automatic enrollment schemes for employees, when this is not yet the case. Indeed, there is evidence demonstrating that individuals are more likely to participate in pension savings schemes when they are automatically enrolled, with a possibility to opt out if they so wish. Of course, the introduction of such schemes has to be envisaged giving due consideration to the realities of national pension systems.
Finally, there is no doubt that most people need to be encouraged to save for their retirement, and that adequate, targeted tax incentives (in the form of tax deductions or credits) can go a long way in achieving this goal. Member States should thus be urged to make sure that they have the right fiscal incentives in place to encourage all citizens, whatever their personal circumstances, to save for their old age.
A recent GFIA survey on protection gaps, which assessed insurance protection gaps in four areas (pensions, natural catastrophes, cyber and pensions) concluded that the gap is the highest in the pension area, with an estimated USD 1.0trn per year additional saving required globally. This staggering figure means that the challenge will only be met by having all stakeholders – citizens, pension providers, public authorities – joining forces and taking appropriate measures. From a European perspective, while member states will continue to play an important role in the pensions area, it is very clear that the European level also has a key role to play. Insurance Europe looks forward to engaging with the new Commission, EIOPA and other EU institutions to jointly identify the best solutions to one of the biggest challenges of our times.
Pan European Personal Pension Product
The 2024 report by former Italian prime minister Enrico Letta touches upon several important issues for the insurance industry. Noteworthy among its proposals is the establishment of an “auto-enrolment EU Long-Term Savings Product”. Moreover, the report addresses the “underwhelming” performance of the Pan-European Pension Product (PEPP) and advocates for its simplification and enhancement.
The fact that, since the implementation of the PEPP Regulation over two years ago, just one provider has put PEPPs on the EU market in a limited number of member states, confirms the concerns raised by the industry about the practical feasibility of the PEPP Regulation. The industry therefore urges policymakers to be realistic about the potential of the PEPP as a way to channel savings across Europe. What this means is that, to see the PEPP come to fruition, substantial reforms will be necessary, touching on many aspects of the regulation. Among those aspects, crucial ones include: the much-debated 1% fee cap, which makes it difficult for companies to offer PEPPs, especially considering the many requirements providers have to fulfil. Additionally, the requirement for PEPPs to outperform inflation over a 40-year timeframe is practically impossible to guarantee. Likewise, the lack of clear and consistent national tax decisions on PEPPs creates uncertainty regarding the potential national tax incentives offered.
In its recent Staff Paper, “A Simple and Long-term European Savings Product: the Future Pan-European Pension Product,” EIOPA outlines the urgent need for a straightforward, portable, and cost-effective retirement savings vehicle to bridge Europe’s pension gaps. EIOPA argues that a revised PEPP could serve this purpose but identifies key challenges—many of which mirror industry concerns—such as the restrictive fee cap, cross-border complexities, and inconsistent national tax treatment.
To address these hurdles and create a more sustainable framework, EIOPA proposes several reforms ahead of the 2027 PEPP review. These include merging occupational and personal PEPPs, focusing on value for money rather than enforcing a rigid fee cap, introducing PEPP labels for national products, making national sub-accounts voluntary, and allowing transfers from other personal pension plans into the PEPP. Additional recommendations involve auto-enrolment, the implementation of Pension Tracking Systems and dashboards, and harmonising taxation rules across member states to enhance the product's appeal.
For now, it is clear that without significant changes, the PEPP risks remaining a theoretical concept rather than a reality for most Europeans. The insurance industry is keen to engage in a renewed dialogue with EIOPA, the European Commission and other stakeholders on how to address the existing barriers in order to enhance pension adequacy for all.