Private pensions for Europe

Private pensions can enhance international and intergenerational risk-sharing and create a deeper European capital market, which allows for better diversification of country-specific risks and facilitates economic growth. Private funding of pensions creates a more integrated European capital market and internal market for pension services. Pension funds should embrace risks in order to be able to build good pensions at reasonable costs. EU regulation of pension funds should therefore not focus on requirements to guarantee safe pensions, but rather should stimulate funds to share risks efficiently among participants and mandate funds to communicate risks transparently to individuals. Mandatory participation in stand-alone pension funds can provide the necessary commitment for better intergenerational risk-sharing. These stand-alone funds can play an important role also as trusted partners for financially illiterate consumers. The scale and type of collectives vary with the specific institutional setting of each European country. To facilitate tailormade solutions for market imperfections and behavioural issues, the EU should allow for mandatory participation and other constraints on free competition in the market for pensions.