Pandemic shows need for more robust retirement plans in EU

State pension systems need to be supported by supplemental retirement arrangements if Europe's Capital Markets Union plan is to progress and achieve its aims.

Support is particularly important at times of high government spending — something that has been exacerbated recently by the COVID-19 outbreak, said a report by a panel of pension and investment experts, looking at how to better create a pan-European capital market, published Wednesday.

The report concluded that the highest workplace retirement plan coverage is achieved in those parts of Europe where occupational plans are mandatory or based on collective bargaining agreements, where unions are involved.

Experts recommended that as the European Commission completes its goal to build a pan-European capital market, known as the Capital Markets Union, the institution should consider introducing mandatory auto-enrollment in countries that currently have no defined contribution workplace arrangements.

Experts added that larger pools of savings will help to improve the liquidity of European equity markets, since Europe's most liquid equity market — the U.K. — left the trading block earlier this year.

Progress in meeting the Capital Markets Union's goals could speed up Europe's recovery from the coronavirus pandemic, minimize the transitional costs to a low-carbon economy, improve financial stability and maintain cross-border investments, the report said.

"Under the right conditions, pension funds can and will contribute to the development of the real economy and drive growth by making long-term investments. The completion of the CMU can strengthen pension funds' contribution, and we share and support many of the recommendations included in this report," said Matti Leppala, general secretary and CEO at PensionsEurope, a group of European pension fund associations, in a news release Wednesday. "The proposed targeted plan of key measures to move Capital Markets Union towards completion can be a source of inspiration for setting a new CMU strategy (and) should play a central role in the EU recovery from the COVID-19 crisis."

Experts also recommended that the commission develop a system to measure countries' progress toward retirement savings adequacy and sustainability to allow individuals to track their retirement pots.

The European Commission is expected to publish an updated and improved package of CMU initiatives in September.