A fundamental shift in policy design, anchored in behavioural realities and underpinned by occupational pensions, is needed to deliver both better outcomes for savers and progress towards the EU’s wider economic goals, a paper from the European Capital Markets Institute (ECMI) has suggested.

The report suggested that addressing the core structural and behavioural frictions in the European Union will not only improve individual retirement outcomes but also advance the EU’s wider objectives.

However, it argued that the EU needs to move away from fragmented, finance-heavy strategies to behavioural and inclusive ones, suggesting that it should redesign incentives to target those most in need, make defaults persistent, balance access with safeguards, strengthen occupational pensions and scale digital support.

In particular, the report warned that while tax deductions, default settings and information campaigns each play a role, they often only reach the most financially engaged, leaving behind the passive majority for whom inertia, uncertainty and liquidity needs dominate decision-making.

"Evidence from France and other countries shows that even well-intentioned reforms have limited and uneven impact unless they are carefully aligned with savers’ behavioural realities," the report stated.

"If Europe is serious about closing its retirement savings gap, it must go beyond technical fixes and design a policy architecture that matches how people actually make financial decisions – not how policymakers wish they would.

"This means shifting from opt-in incentives to opt-out defaults, from rigid lock-in to conditional liquidity and from abstract financial literacy to emotionally resonant, tech-enabled tools."

In addition to this, the paper stressed the need to recognise that the burden of action shouldn’t fall solely on individuals, suggesting that employers, intermediaries and public institutions must be mobilised to create environments in which long-term saving is the path of least resistance.

More broadly, the report argued that behavioural design alone is insufficient without robust prudential safeguards, suggesting that "savers must be able to trust that the products they invest in are well-governed, fairly priced and subject to effective oversight and redress mechanisms".

Perhaps the strongest call to action, however, was the call to put occupational pensions at the centre of the EU’s retirement savings strategy.

The ECMI noted that while much debate has focused on voluntary third-pillar products such as the Pan-European Personal Pension (PEPP), workplace schemes remain the most effective way to broaden coverage and ensure adequacy.

In particular, the think tank suggested that defaults, automatic enrolment and collective arrangements can be deployed most effectively in the second pillar, while EU institutions can exert greater leverage given the link to labour mobility and the single market.

The paper identifies three key policy priorities in this area: improving portability to ensure workers can carry entitlements across borders without prohibitive costs or administrative hurdles, setting minimum prudential standards that safeguard long-term adequacy while allowing sufficient investment flexibility, and facilitating collective or sectoral funds that extend coverage to SMEs and non-standard workers.

While acknowledging the role of third-pillar products like PEPP in enhancing portability and choice, the report emphasised that these will remain niche compared with occupational schemes, which benefit from risk pooling, defaults and employer involvement.

More broadly, however, the report also emphasised the need for a wider shift towards a more coherent European retirement savings architecture, warning that fragmentation across tax regimes, default rules, liquidity provisions and advice undermines both uptake and trust.

While it said that the upcoming PEPP revision and the Sustainable Investment Union framework are "timely opportunities" to address these barriers, it stressed that harmonisation for its own sake is not the goal.

Instead, the report argued for an enabling ecosystem that empowers individuals with confidence, flexibility and trust in the system, while aligning national retirement strategies with broader EU objectives of capital market development, financial inclusion and economic resilience.

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