European pension systems are entering a decisive phase. Demographic ageing, weaker growth prospects and fiscal constraints are challenging the ability of public pension systems to deliver adequate retirement income across the EU. As a result, the development of well-governed supplementary pensions, both occupational (Pillar 2) and personal (Pillar 3), has become an increasingly important policy and market priority.

While traditionally anchored in strong public pay-as-you-go systems, demographic ageing is rapidly reshaping their sustainability. On the one hand, the share of people aged 65 and over in the EU is projected to increase from 21.6% in 2024 to above 30% by 2070. On the other, old-age dependency ratio is expected to rise from around 37% today to nearly 60% by 2070. This sharp decline in the ratio of workers to retirees is placing structural pressure on pension financing.

This dynamic has repercussions on public pension expenditure (pillar I), which averages 12.5% of GDP in the EU. In several Member States, spending already exceeds 14–15% of GDP, among the highest levels globally. With contribution rates on labour already elevated, there is limited room to increase funding without negatively affecting employment, competitiveness and growth. Yet, reforms such as raising retirement ages or adjusting benefits remain politically challenging.

Against this backdrop, supplementary pensions – both occupational (pillar II) and personal (pillar III) – are becoming increasingly important. However, their development remains uneven and participation is still limited: only around 20% of Europeans are enrolled in occupational schemes and about 18% hold personal pension products, while more than 40% do not save for retirement beyond public systems. Moreover, only three European countries have a well-developed pension fund ecosystem: Denmark, Sweden and the Netherlands. The need to develop pension funds accomplishes two objectives: not only does it improve retirees’ income, it also provides equity financing to companies all throughout the Union.

Recent EU initiatives seek to address existing gaps in pillar II and III by promoting auto-enrolment, pension tracking systems and revisions to existing frameworks for occupational and personal pensions. However, their effectiveness entirely depends on national implementation and Member States ‘goodwill, as key levers – such as taxation, labour law and scheme design – remain largely at Member State level.