The European Commission (EC) has adopted its widely anticipated pension package aimed at boosting supplementary pension coverage across Europe, including proposed legislative changes to the IORP II Directive and the Pan-European Personal Pension Product (PEPP) regulation.

In addition to proposed updates to EU pension legislation, the commission has also made a series of recommendations for member states to adopt, such as pension tracking systems, pension dashboards, and auto-enrolment into supplementary pension schemes.

While these three policies have been mooted previously, the commission has today confirmed that it officially recommends member states adopt these initiatives.

The EC will monitor the implementation of the recommendations at the national level through several mechanisms, including the European Semester. It intends to promote the exchange of experiences and best practices between member states.

In outlining its package, the EC stressed that the proposed measures “fully respect” member states’ competences to organise and design their national pension systems, as well as the autonomy of the social partners where they are responsible for establishing and managing pension schemes.

However, it is hoped that its decisions will “strengthen both the demand for and the supply of supplementary pensions”. It also emphasised that its proposals aim to complement, rather than replace, public pensions, which it said are the foundation of pension systems in Europe.

First suggested in 2024, the commission has recommended that AE be implemented “in line with national circumstances and while fully respecting the role and autonomy of social partners and collective bargaining prerogatives”.

It has also confirmed that the PEPP could be used as an AE vehicle, as a workplace scheme.

Member states have also been advised that pension tracking systems should be compatible with the European Tracking Service, supporting cross-border mobility. Furthermore, national pension dashboards are recommended, so that member states’ policymakers have a better view of the “coverage, sustainability and adequacy of their multi-pillar pension system”.

The EC envisages that national dashboards will feed into an EU-level pension dashboard, something the European Insurance and Occupational Pensions Authority (EIOPA) chair, Petra Hielkema, has expressed support for, as she believes they could reduce the gender pensions gap.

In addition to these recommendations, the IORP II Directive will be amended as the commission stated that many schemes remain too small to diversify their investments and deliver optimal outcomes for savers.

“To unlock the potential of occupational pensions, the commission proposes to strengthen and modernise the framework to better support efficiency, scale and trust in supplementary pensions,” it said.

“The review enhances the protection of savers and removes barriers to market-driven consolidation and other forms of fostering economies of scale. These measures will help IORPs to operate more efficiently, reduce costs, diversify their investment portfolios, including in equity, to deliver stronger returns on citizens' savings. This also contributes to increased financing opportunities for European companies.”

Legislative changes to the PEPP regulation will “remove existing requirements and design features that have hampered the take-up of the PEPP”, the commission said, while at the same time “continuing to ensure a high level of consumer protection”.

As part of this, an affordable and easily accessible Basic PEPP, invested in simple financial assets and offered to the public without advice, will be introduced. Savers will also have access to tailored PEPPs that may include guarantees and more complex assets, requiring advice to ensure their consumer understanding.

“As a result, the PEPP will be adaptable to different investor preferences and suitable for various types of providers, including asset managers and insurers. The PEPP will also be open to workplace use and could serve as an AE vehicle, where this is allowed under national law and fully respects the prerogatives and autonomy of social partners,” the commission said.

“Those changes will ease barriers to provision and distribution, broaden choice for savers, supported by favourable and consistent tax treatment, as Member States will be required to offer comparable tax treatment between national personal pension products.”

In addition, the prudent person principle, which governs how IORPs and PEPP providers should invest and manage their asset portfolios, will be clarified. Its current form has led to a variety in the way it has been interpreted and implemented across member states. This, the EC said, has at times constrained pension schemes in their ability to diversify investments, in particular in equity.

“In line with the Savings and Investment Union (SIU) Strategy, the commission communication adopted today clarifies the principle, with the aim to increase investment into equity – both private and listed – to help citizens earn higher long-term returns on their savings and free up new sources of financing for the EU economy,” the EC stated.

The proposals will now be negotiated and agreed on by the European Parliament and Council.

---