European Commission Unveils Major Pension Rule Reforms Under Capital Markets Strategy

On November 20, 2025, the European Commission formally adopted legislative proposals designed to enact a significant overhaul of supplementary pension systems across the Union. This major initiative stands as a cornerstone of the broader Capital Markets and Investment Union (SIU) Strategy, which was initially launched earlier in 2025. The overarching goal of these comprehensive reforms is to unlock substantial capital currently held under the management of pension funds, thereby channeling these resources toward financing the European economy and boosting the long-term returns available to citizens’ savings.

The sheer scale of the potential impact is underscored by the assets managed by pension funds across the European Economic Area (EEA), estimated to be approximately 4.9 trillion US dollars. The proposed reform package applies across the entire EEA and specifically targets revisions to both the Institutions for Occupational Retirement Provision II (IORP II) Directive and the Pan-European Personal Pension Product (PEPP) Regulation. Key regulatory bodies involved in driving this process include the European Commission, the European Insurance and Occupational Pensions Authority (EIOPA), the European Parliament, and the Council.

The Commission asserts that these coordinated actions will introduce novel funding avenues and enhance long-term yields for individuals. A critical aspect addressed is the diversification of pension investments beyond existing regulatory constraints. These reforms are intrinsically linked to the SIU Strategy, which aims to complement the Single Market for goods by shifting the primary focus from bank-centric financing models toward long-term market-based funding, mirroring the structure seen in the United States. Analysts frequently point out that Europe maintains a strong inherent preference for saving domestically, a tendency exacerbated by existing regulatory hurdles.

Particular emphasis is being placed on refining the “prudent person principle” to encourage pension managers to undertake longer-term and potentially higher-risk investments, specifically in equity capital. Furthermore, proposed amendments to the PEPP Regulation seek to replace rigid spending caps with a more flexible “value-for-money” assessment approach. This adjustment is intended to significantly increase the uptake of the PEPP product among the general populace. It is worth noting that the Pan-European Personal Pension Product (PEPP) was initially adopted in 2019 and became applicable starting in March 2022.

Concurrently, reports indicate that the European Commission plans to mandate that member states undertake pension reforms, backing this push with a significant financial lever. The Commission has signaled it might restrict access to 2 trillion euros in budgetary financing slated for the 2028–2034 period if national governments fail to adhere to the recommendations. This linkage raises political eyebrows, given that pension policy is traditionally outside the direct, explicit competence of the EC. This skepticism is further fueled by 2023 data showing that 80% of EU pensioners relied solely on state pensions, with one in five individuals over 65 facing poverty risk—totaling 18.5 million people. While the EC explicitly stated it will not dictate retirement ages, its clear ambition is to foster extensive private savings schemes modeled after the American system.