Speech at the EFAMA’s annual conference - the Investment Management Forum

Good morning, ladies and gentlemen,

It is a pleasure to join you at this year's EFAMA Annual Conference. Bernard, thank you for your kind invitation to speak today - and thank you as well, Tanguy, for your warm welcome.

The coming years will be critical in defining the future strength of Europe's economy and society. In this context, the financial sector has a unique opportunity-and responsibility-to lead. By fostering resilience, competitiveness and fairness, we can help shape an economy that not only meets today's challenges but also anticipates those of tomorrow, ultimately improving the quality of everyone's life.

One of the most pressing issues we face is the growing pension gap. It is here that the financial sector, including asset managers, has a key role in helping citizens secure a better retirement income-a fulfilling 'life beyond the paycheck'-through investments that deliver genuine value for money. At the same time, these investments can pave the way for a European Savings and Investments Union, which is essential to fostering sustainable competitiveness while supporting Europe's green and digital transitions.

Today, I will share insights on addressing pension challenges in Europe, on the important role that asset managers play, as well as our perspective on the European Savings and Investment Union.

[Addressing the pension challenges]

Europe is the fastest-aging continent - in some countries, the elderly population already outnumbers younger people. Currently, for every pensioner, there are nearly three working-age individuals to support them. However, according to European Commission's projections, this ratio is expected to fall to two working-age individuals per pensioner within the next two decades. In certain Member States, this ratio has already dropped below two, and further declines are anticipated.

This demographic trend places increasing pressure on the working population to shoulder the rising costs of retirement benefits. In response, governments across Europe have been introducing pension reforms aimed at improving the long-term viability of pension systems, while safeguarding the sustainability of public finances.

[Need for three-pillar system…and a cultural shift]

While I appreciate the efforts to enhance the adequacy and sustainability of our pension systems, it is crucial that any modern and resilient pension systems is built on a robust three-pillar structure. This diversification ensures that risks are not concentrated solely into one pillar, which is typically Pillar I. Evidence shows that countries with well-developed three-pillar pension systems tend to perform economically better than those that rely predominantly on a single pillar.

When individuals have confidence in their financial future, they don't feel compelled to drastically cut consumer spending as they approach retirement. Instead, they can maintain a relatively consistent spending throughout their lives, thereby contributing to economic growth.

Although some countries have already established a mature three-pillar pension framework, many others are still in transition. Achieving this transition requires a fundamental cultural shift. Younger generations entering the workforce today can no longer depend- definitely not entirely-on public pensions. It is crucial that individuals begin to recognize the need to save and invest, where possible, in supplementary pensions to secure a good retirement income.

Like any cultural shift, this transformation takes time. In my country, the Netherlands, it took over half a century to fully make this shift - which wasn't easy, but the effort paid off. It required courageous political leadership, lengthy negotiations with social partners, and a well-regulated and supervised market. People's long-term financial security was put at the heart of the discussions. Importantly, the Netherlands implemented these reforms after World War II, when the economy was far from thriving. And yet, the economic situation was not a barrier to creating a strong pension system.

So, in today's world, what does it take to develop supplementary pensions that enable citizens to build stronger, more diversified incomes for retirement?

[what does it take to implement a three-pillar system]

Let me be honest with you.

Despite the urgency of building supplementary pensions, we cannot expect citizens to carry the entire burden. Many are already struggling with high living costs and have limited capacity to save. In fact, one in five people live in poverty, making it even harder to set aside money for the future.

This is why Pillar I must-and will continue to-remain the primary source of income for many pensioners, particularly those who are unable to accumulate substantial savings. Pillar I is essential for promoting equity and maintaining social cohesion.

However, governments must take a holistic approach to pension reform, considering how supplementary pensions can be developed in each Member State, in line with their unique history and regulations. Tools like pension dashboards can play a pivotal role, offering a comprehensive view of existing pension schemes across all three pillars. These dashboards enable policymakers to identify gaps in coverage and develop targeted measures to address them.

At the same time, we need measures that encourage individuals to think about retirement at an early stage and actively participate in occupational and personal pension schemes under Pillars II and III. These supplementary pillars are essential for providing a more substantial and secure income in retirement, complementing the foundation provided by Pillar I.

[pension tracking systems]

One way to encourage early thinking about retirement is by ensuring every citizen has access to a pension calculator-what we call a pension tracking system (PTS). These tools allow individuals to check their projected retirement income and monitor how their contributions grow through savings and investments. Such tools are invaluable for empowering people to take an active role in planning their financial future. Instead of passively waiting for retirement, they provide an opportunity to take action early on, if the projections for future pension entitlements fall short of expectations.

Encouragingly, this message in being heard, as we see progress in the implementation of PTS across Europe. Currently, nine Member States in Europe have established comprehensive PTS platforms covering all three pension pillars (Norway, Sweden, Estonia, Latvia, Germany, France, Denmark, Croatia, and Slovakia). Additionally, several countries offer pension calculators that cover at least one or two pillars.

While there are still seven Member States (Hungary, Romania, Bulgaria, Greece, Lithuania, Slovenia, and Ireland) currently without any PTS, we see a promising momentum, as further efforts are underway in four Member States to expand or introduce pension tracking systems.

[auto-enrolment]

Another approach to preparing for retirement-without the need for individuals to actively think about it-is automatic enrolment into an occupational pension fund by their employer. In cases where mandatory enrolment is not feasible, auto-enrolment can serve as a highly effective tool for increasing pension participation.

To achieve meaningful coverage and scale in private pension savings, auto-enrolment should ideally be introduced on a nationwide basis for all employees. Such schemes would require mandatory contributions from both employers and employees into a funded pension plan, while giving employees the option to opt out-preferably within a defined time frame.

Currently, genuine auto-enrolment schemes, as described, exist only in the UK and New Zealand. However, several European countries-France, Germany, Italy, Lithuania, and Poland-have implemented systems that incorporate most of the key elements of auto-enrolment. Ireland is also set to launch a fully-fledged auto-enrolment scheme in 2025.

[good products, at EU and national level…and possibly with a label]

Further, to increase the uptake of supplementary pensions, more attention needs to be given to personal savings products that are designed with retirement in mind. Although there are many long-term investment products available, not all qualify as true retirement products. Ideally, these products should offer tax advantages, restrict access until retirement, yet still be flexible to accommodate career breaks and be portable, across jobs and across borders.

Lessons from the Pan-European Pension Product (PEPP) initiative highlight the importance of ensuring that any revised EU long-term savings products receive similar fiscal treatment to other pension products within the same member state. Additionally, implementing EU-wide harmonized taxation would greatly facilitate cross-border sales. EIOPA would also recommend focusing on value for money and avoid imposing initial cost caps, as these could hinder uptake and prevent the realization of economies of scale. Allowing the transfer of accumulated funds from other personal pension products into the PEPP would further enhance its appeal, and uptake. Finally, it is also worth considering positioning the PEPP as a Pillar II product, enabling employer's contributions alongside personal contributions.

While we acknowledge that the current PEPP has not met expectations, there is still scope for simple, portable, digital-first pension products that offer value to consumers, both at the EU and national levels. Whether at the EU or national level, one key development that could drive progress is the creation of standardized labels for pension products. For instance, when I hear my children talk about investing in crypto, I see a label behind which there are hundreds of different assets. I would like to be able to recommend a similar label for pensions. Right now, my only advice is to find a good intermediary who can provide professional advice on a range of products-often involving hundreds of options-and by then, I have already lost their attention. So, let's work together to create a label that can foster trust, provide clarity, and lower barriers for cross-border providers.

With this in mind, I see no reason why we shouldn't consider developing also a standardized, portable, and cost-effective occupational pension product across Europe. I would like to take this opportunity to thank EIOPA's Occupational Pensions Stakeholder Group for their valuable ideas, published earlier this May, on how the Pan-European Occupational Pension Product (PEOP) could be realized.

[The Role of Asset Managers in the Pension Space]

Now, let me turn to the critical role asset managers play in the pensions landscape. With over €27 trillion in assets under management, your influence on shaping pension outcomes cannot be overlooked.

Pension funds rely significantly on you for managing their assets - either through investments in off-the-shelf funds such as UCITS-where over a billion of IORPs' investments are currently allocated-or via segregated mandates. In other words, few IORPs engage in direct, in-house securities. Moreover, asset managers often oversee pension assets held by other institutions beyond IORPs, such as insurers.

However, while the benefits provided by asset management are clear-such as achieving economies of scale-it is important to acknowledge and manage some associated risks.

The first one is transparency on costs. External investment management introduces additional layers of indirect costs - our analysis shows that distribution and asset management costs represent the highest costs. When asked about unit-linked products, 40% of undertakings reported that asset management costs account between 10% and 30% of total costs, while more that 30% of them reported that these costs account for more than 50% of total costs. As these costs erode returns for retail investors, it is essential to have great visibility. Currently, only a few national supervisors have full transparency regarding both direct and indirect costs.

The second one is represented by the raise of potential conflicts of interest - which may also result in excessive investment fees - especially when IORPs are established by financial institutions that delegate investment management to their own asset managers. EIOPA included a recommendation to address this potential issue in its advice on the IORP II review.

Acknowledging these challenges, asset managers, as stewards of pension assets, are uniquely positioned to drive positive change by offering products that provide value for money and are tailored to the specific needs of pension schemes.

[European Savings and Investments Union]

This brings me to my final point. With approximately €34 trillion in savings across Europe, much of it held in bank deposits, providing safe and attractive retirement options is more critical than ever to build a European Savings and Investment Union (ESIU).

High-profile leaders such as Paschal Donohoe, Enrico Letta, Christian Noyer, and Mario Draghi have provided valuable roadmaps for progress in this area. Many of the recommendations I have discussed today-from pension dashboards and tracking systems to further developing supplementary pensions through auto-enrolment schemes and good retirement products-are echoed in their analyses.

One crucial insight from these reports that I have not yet addressed is the need for enhanced supervision at the EU level. Divergences in regulation and supervision hinder the development of integrated capital markets, driving up costs, reducing competitiveness, and sometimes leaving investors exposed to varying levels of protection across the Union.

This challenge extends to the pension sector as well, which remains deeply fragmented across Europe. In some Member States, the same financial institutions manage occupational pensions under IORP II, Solvency II, first pillar bis, and personal pensions. To address this complexity, part of the solution will be to adopt a more holistic supervisory approach-one that ensures the prudential soundness, fair conduct and stability of all financial institutions managing pensions across all three pillars. Strengthening supervision in this way would foster greater public trust and confidence in the EU pensions sector.

Trust is the cornerstone of stronger capital markets. Citizens have much to gain from the Savings and Investments Union and are essential to its success. However, for them to place more of their savings into capital markets, they must feel appropriately protected. Only with this assurance will they have the confidence to put their savings to work, contributing not only to their own financial security but also to Europe's broader economic growth.

In closing, let me reiterate what are for me the key points.

We have reached a critical juncture where a change in how people save is essential. We need to create a culture of long-term investment in capital markets. We need to shift savings from bank accounts into productive investments. Pension tools, auto-enrolment schemes and good retirement products are a part of this, as is a well-functioning supervisory pension system. A sound supervisory system can enhance both the competitiveness of EU capital markets, and consumer trust. Together, this will help people to become more comfortable with the financial decisions they take and ultimately support their own financial health.

Building a robust, inclusive, and sustainable pensions system is a shared responsibility. EIOPA remains committed to supporting this vision through its regulatory and supervisory efforts. We will continue to work closely with the EU institutions and our stakeholder, including the asset management community, to tackle the challenges ahead and seize the opportunities that lie before us.

***

Ladies and gentlemen,

Thank you for your undivided attention. Thank you once again for the opportunity to speak today. I look forward to hearing your perspectives on how we can advance the European pensions agenda.

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