Economics and Finance

Pension funds play an important role in the long-term financing of the EU’s real economy and contributing to jobs and growth in Europe. The amount of pension funds’ assets invested in the European Economic Area (EEA) differs between Member States and ranges from 45% to over 75%.

Pension funds increase the amount of market-based financing available to the economy and improve the efficiency of financial intermediation. Countries with a substantial funded pension funds sector tend to have better developed capital markets. Many non-euro area investments can also have a positive impact on Europe indirectly, as many companies or part of their European business is financed via capital markets around the world.

Growing, developing, and stable economy attracts investments. If investment opportunities in Europe will improve, the stake of the European investments by pension funds will increase accordingly. Implementing the European Commission’s CMU action plan would be very helpful in this respect.

CMU Sub Expert Group on pension funds

PensionsEurope provided comments to the CMU Sub Expert Group on pension funds, and you can find the minutes of its 1st meeting here (24 October 2017). In February 2018, the Sub-Group gave its proposals and recommendations to the Expert Group on barriers to free movement of capital in the context of the CMU.

In the summer 2018, PensionsEurope conducted a survey on drivers of equity investments by pension funds, and PensionsEurope will publish the results of this survey in the autumn 2018. We hope and believe our survey report is relevant to the upcoming “study on the drivers of investments in equity by insurers and pension funds” which Deloitte and CEPS have been commissioned by DG FISMA to carry out a by the end of 2018.

PensionsEurope report on equity investments by pension funds

PensionsEurope published a report on drivers of equity investments by pension funds on 25 September 2018. It is based on a survey which PensionsEurope conducted amongst our Members in the summer 2018.

The survey report supplements our comments to the CMU Sub Expert Group on pension funds on the main drivers in cross-border investment by pension funds and our Pension Fund Statistics. We hope and believe our comments are relevant to the upcoming “study on the drivers of investments in equity by insurers and pension funds” which DG FISMA has commissioned to Deloitte and CEPS to carry out by the end of 2018.


The EU economic governance is based on three main blocks:

- Reinforced economic agenda with closer EU surveillance
- Action to safeguard the stability of the euro area
- Action to repair the financial sector

Over the European Semesters since 2011, there have been a broad range of pension-related country-specific recommendations agreed. Relatively frequent elements included:

- Increasing statutory pension ages to reflect changes in life expectancy and align with this for the future;
- Equalising state pension ages for men and women;
- Limiting early retirement and integrating special pension schemes into the mainstream;
- Increasing the employability and participation of older workers, including lifelong learning and active ageing;
- Promoting active labour markets including for older groups; and
- Encouraging private saving.

PensionsEurope's Paper on the effects of Quantitative Easing on pension funds

PensionsEurope calls upon regulators to address the specific effects of both low interest rate environment and Quantitative Easing policies on pension funds. However, we do not question Quantitative Easing (QE) policy as such.

Decreasing interest rates can put funding ratios of DB schemes under pressure and increase the price of annuities for both DB and DC schemes. This can mean lower pension benefits and/or increase in contributions.

Pension funds are by their nature long term investors due to the duration of their liabilities, but are now faced with the effects of short term QE. Therefore national and European regulators need to find an adequate balance between the short/medium term challenging environment and the sustainability of pension promises. 


The obstacles with the withholding tax (WHT) procedures pose a major barrier to cross-border investments in the EU and to build the Capital Markets Union. In order to boost the economic growth in the EU, PensionsEurope calls on the European Commission to remove all the WHT barriers to cross-border investments. This means that the EU Member States shall respect the case-law of the Court of Justice of the European Union, reciprocally and automatically recognize pension funds, and simplify their WHT processes.

A large number of practical problems with the WHT refund processes still exist in spite of the EFTA judgment “Fokus Bank” (2004) and the case law of the Court of Justice of the European Union i.e. “Denkavit” (2006), “Amurta” (2007), “Aberdeen” (2009), and “Santander” (2012). The above-mentioned cases have shown that the WHT practices in many EU Member States are discriminatory with respect to dividends earned by foreign funds, and therefore, contradicting the European law.

The WHT refund processes are complex, expensive, and long-lasting. Often they can last even 10 years and cost half of the expected refunds, as costly tax advice in foreign languages is needed. Since the legal outcomes are uncertain, given that the legal recourse involves several levels of jurisdiction, often pension funds do not assert their justified reclaims. Therefore, PensionsEurope calls on the EU Member States to ensure simple, transparent, and inexpensive WHT refund processes.

PensionsEurope has proposed to the European Commission to establish an EU tax register of recognised pension institutions in order that Member States can reciprocally and automatically recognise pension institutions. Furthermore, in many countries pension institutions invest cross border via specialised investments funds and/or vehicles to increase the economies of scale, and it is important to ensure a tax-neutral treatment of these investment structures as well.


Risk management is essential for pension funds and they regularly carry out their own stress tests and scenario analyses (e.g. Asset and Liability Management studies) as part of their own risk management processes.

The specifications and methodologies of national stress tests differ significantly from the ‘Common Balance Sheet (CBS)’ (Holistic Balance Sheet (HBS)) used in EIOPA’s stress test. The EIOPA stress test is more about testing the resilience of the sector (per country), rather than individual funds, and stability of the financial system as a whole. These outcomes can lead to different and contradictory steering signals for pension funds and for their stakeholders. As a consequence, they can also cause misunderstanding amongst the stakeholders and general public. Many of the practical and methodological problems related to EIOPA Common Balance Sheet (CBS) could be avoided by developing a cash flow analysis further and by replacing the CBS by it.

The IORP II Directive stresses that the further development at the EU level of solvency models, such as the HBS, is not realistic in practical terms and not effective in terms of costs and benefits, particularly given the diversity of IORPs within and across Member States. No quantitative capital requirements - such as Solvency II or HBS models derived therefrom - should therefore be developed at the EU level with regard to IORPs, as they could potentially decrease the willingness of employers to provide occupational pension schemes. PensionsEurope calls for policymakers and EIOPA to respect this.


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