It is essential to strengthen the second and third pillars, which have been too weak up to now. Not only does reducing or even closing the private pension gap speak in favour of more occupational and private pension provision through pension schemes and insurance companies, but so does the relief of state budgets (through stabilisation or even reduction of subsidies for the state pension insurance scheme). Last but not least, it is also a matter of mobilising additional capital for investment via the contribution funds invested on the capital markets.
No ambitions
The new government does not appear to have any ambitions to revive these plans. The CDU wants an ‘early starter pension’ for children under the age of 18, which the state would subsidise with £10 per month per child. However, important questions remain unanswered: Should additional payments be possible? If so, should there be an upper limit? Are further allowances possible? How should it be treated for tax purposes?
It is also unclear what will happen to the early starter pension once the child reaches the age of majority. According to the coalition agreement, a transition to old-age provision is planned, but no further details are given. Finally, the practical implementation is doubtful. The draft federal budget appears to allocate only around €90 million for this project. That would be enough for one age group at most. It is far too little to strengthen old-age provision in the long term.
“The idea is right”
From the perspective of the German Savings Banks Association (DSGV), the ‘idea of an early retirement pension is correct. It can be a building block for the urgently needed restructuring of old-age provision by introducing children to the capital market at an early age and contributing to financial education.’ However, for Karolin Schriever, Executive Board Member of the DSGV, it is crucial ‘that additional payments are possible in order to significantly build up the capital stock’.
There have also been and continue to be initiatives at European level to strengthen pension provision. However, due to its complexity, the ‘pan-European pension product’ (PEPP) adopted in 2019 has so far been a damp squib and is not yet offered in significant numbers in Germany or other European countries. The European supervisory authority EIOPA and the EU Commission therefore made proposals for a revision of PEPP in September 2024.
The cost cap is to be made more flexible, the obligation to offer PEPPs in other countries is to be abolished, the transfer of other pension products to PEPPs is to be made possible, and PEPPs are to be promoted through tax incentives. In addition, PEPPs are to be approved not only as private pension products but also as occupational pension products. Finally, the supervisory authority advocates auto-enrolment, i.e. the automatic participation of EU citizens in a PEPP as soon as they turn 18 or start working.
The European Commission has adopted and expanded these proposals. These involve changes to overly strict risk mitigation strategies and excessive guarantees and transparency requirements. These would make the product inflexible and expensive.
Only a small portion
However, PEPP is only a small part of a broad range of proposals at European level to strengthen the second and third pillars of pension provision. The European Commission is making a big deal out of the ‘Savings and Investment Union’, in which (private) pension provision is to play a central role.
The starting point is information about existing pension provision. The aim is to give every EU citizen access to a simple and transparent pension dashboard via a pension tracking system. This will enable everyone to see what assets they already have, how much their pension will be and when they will start receiving it. Approaches are already in place in some countries. However, there is currently no mandatory and complete overview of all three pillars that is also kept up to date on an ongoing basis. In Germany, a digital pension overview is currently being developed.
The German financial sector is positive about the EU Commission’s initiative. The Volks- und Raiffeisenbanken (BVR) welcome the Savings and Investment Union project because the opportunities offered by international and, in particular, European capital markets should be exploited in pension provision. ‘An EU savings account can play an important role in this and should be implemented by the German government in a national pension savings account,’ BVR spokeswoman Cornelia Schulz told the Börsen-Zeitung newspaper.
She also referred to the ‘Finance Europe’ label, which seven EU member states presented in June 2025. According to this label, savings and pension products bearing it must invest at least 70% of the capital invested in European assets in the long term. Shares, European long-term investment funds (Eltif), bonds and investment funds are to be permitted. From the BVR’s point of view, the EU label can create trust and strengthen Europe as a financial centre. However, it adds a caveat: ‘In our opinion, however, it should not be linked to pension provision, as this would unnecessarily restrict the global investment spectrum for investors.’
For Thomas Richter, CEO of the German fund association BVI, one thing is clear: ‘Who could object to the goal of bringing more people to the capital markets and financing the European economy? However, the label cannot be aimed at inexperienced savers because, among other things, it allows for investments with low liquidity.’ Like the BVR, he considers the label unsuitable for retirement provision, ‘because the narrower investment universe leads to lower return opportunities in the long term’. It is also questionable whether EU countries will be able to provide the necessary tax incentives. The proposal from the seven countries only states that the participating Member States are free to determine the tax treatment of the labelled products.
For Richter, however, the reform of private pension provision in Germany is a priority. ‘New label products at EU level can at best play a supplementary role.’
A different attitude
Unsurprisingly, the insurance industry sees the role of the ‘Finance Europe’ label as part of the savings and investment union somewhat differently. Investing in European savings and investment products could ‘mobilise private capital to strengthen competitiveness and pension provision,’ Jörg Asmussen, chief executive of the industry association GDV, told the Börsen-Zeitung newspaper.
The EU Commission also has proposals for occupational pension schemes. To improve returns – which the Commission criticises as being too low for beneficiaries at 0.9% over the past ten years – unlisted securities and alternative asset classes could also be permitted in capital investments. To this end, risk management requirements should be tightened and the supervisory authorities’ powers of intervention expanded. The Commission also criticises the small size of pension funds, which makes risk diversification and long-term investment difficult, but does not make any proposals on how this could be changed.
Proposals in the final quarter
The European Commission called for comments on this issue in June 2025. The deadline for feedback expired on 21 July. The European Commission plans to publish its recommendations in the fourth quarter of 2025. Given the EU’s modest track record to date, it is questionable whether this approach will enable pension provision to be strengthened quickly and sustainably. National initiatives are therefore essential. The fact that the new federal government has shown so little ambition in the area of pension provision to date is disappointing and, in view of demographic developments, unacceptable.
Source: Börsen-Zeitung newspaper dated August 22, 2025 (machine translated)
