The European Commission announced on Thursday a series of recommended changes that member states should implement in their pension systems, proposing, among other measures, the automatic enrollment of contributors in supplementary pensions.
In essence, the European Commission aims for workers to have access to supplementary pensions automatically.
Maria Luís Albuquerque, Commissioner for Financial Services, Savings Union, and Investments, stated in a press release, “Our objective is clear: we want everyone to maintain a good standard of living in retirement, which is why we have adopted a comprehensive approach to strengthen supplementary pensions in order to supplement, but not replace, public pensions.”
What’s coming next?
Additionally, the European Commission has urged EU countries to adapt their pension systems to promote supplementary pensions, such as retirement savings and PPR, which are underutilized in Portugal, suggesting automatic enrollment and professional funds.
The Commission has introduced a set of measures to help citizens secure adequate retirement incomes by improving access to more effective and higher-quality supplementary pensions.
The aim is for the proposed actions to complement rather than replace public pensions, which form the foundation of pension systems in all member states,” the European Commission announced.
These proposals are aimed at creating “stronger and more efficient supplementary pension systems“, which “could also contribute to Europe’s economic growth and competitiveness by mobilizing long-term savings for productive investments,” according to the institution.
The European Commission explains that “adapting pension systems is necessary in response to demographic changes and labor market dynamics.”
Why supplementary pensions?
In a Q&A published on its website, the European Commission clarifies that “public pension systems are the backbone of pension schemes in all Member States“, but “with the rapid aging of the population, declining labor force, and the prevalence of atypical employment, it is increasingly important to promote opportunities for citizens to obtain more adequate and diversified retirement incomes”.
“Supplementary pensions – professional and individual pension plans – play an important role in this context. They can help ensure that retirees maintain a decent standard of living by enhancing public pensions,” it states.
It further explains that the “role of supplementary pensions has been increasing“, but “the supplementary pensions sector remains underdeveloped in many member states”.
“According to the European Insurance and Occupational Pensions Authority (EIOPA), only 20% of Europeans participate in occupational pension schemes, and only 18% have individual retirement products. This situation places many people at risk of a significant drop in income upon retirement, which could negatively impact their quality of life,” the European Commission reports.
Therefore, practically speaking, Brussels proposes “auto-enrollment in supplementary pension schemes, under which workers are automatically enrolled in supplementary pension plans unless they choose to opt-out, thereby remaining free to decide.”
The case of Portugal
Portugal’s system, which primarily relies on the public Social Security pension, faces challenges similar to those in other EU countries, such as rapid population aging, potentially lower future pensions, low participation in supplementary plans, and irregular contribution careers.
In light of these issues, Brussels is urging Portugal and other European countries to start using automatic enrollment in supplementary pension plans, with an opt-out option, whereby companies would offer such plans, and workers would contribute small percentages of their salary to these savings.
At the same time, the European Commission wants each EU country to have a system that allows every citizen to see all pension entitlements in one place. For Portugal, this would mean that Social Security would have a monitoring system for public, professional, private funds, and the Retirement Savings Plan (PPR).
This would allow those who have worked in other EU countries to see everything centralized, including future projections.
