Several months ago, former European Central Bank President Mario Draghi asked European leaders to ‘do something’. Europe is facing a poly-crisis which requires us to adapt and take swift action on multiple fronts to save the EU economy.
The key question is though: where is the money going to come from? Consumers’ savings could be the answer. Working capital markets are key to powering the economy as well as addressing consumer challenges, like the looming pensions crisis.
Mobilising consumers’ savings
Currently, over €12 trillion is held in consumers’ cash and savings accounts instead of being invested. A staggering €300bn of investment cash flows out to the US every year looking for more lucrative returns.
The reason for this? The poor quality of investment products. European retail investment products are way too expensive compared to their US or British counterparts. This is due to the exorbitant fees that intermediaries charge consumers for financial ‘advice’ that is actually little more than a sales pitch. Products are also badly designed, offering poor returns due to funds that focus on bonds (i.e. fixed income debt) and not enough on investing in stocks.
European retail investment products are way too expensive
This is a lose-lose scenario. For consumers, the opportunity cost of not investing savings is huge. Inflation eats away at purchasing power, and it makes a comfortable retirement less likely. For European industry, it is a major competitive disadvantage as it deprives companies of much-needed investment funds. Politically, it leaves the EU even more dependent on the US financial system.
Above: for consumers, the opportunity cost of not investing their savings can be enormous.
This has happened while governments have gradually scaled-back state pensions. Instead, they are asking consumers to invest to cover the difference to ensure a comfortable retirement. Very few countries, however, have managed to ensure an attractive product offering to allow savers to actually do so, undermining consumer confidence. Mis-selling scandals, poor experiences and word of mouth did the rest.
Limited choices
For consumers, this leaves them with limited choices. They can accept low-quality products or simply disengage from the market completely. Alternatively, they can try to find better products themselves, which most often means ETFs (Exchange Traded Funds, which offer higher returns and lower fees, but are often US-based) or highly risky products like crypto.
Consumers will invest if the right incentives are in place
But there is scope for optimism. Consumers will invest if the right incentives are in place. Flourishing retail investment markets – like the UK or the Netherlands – are a testament to this.
In March 2025, the European Commission unveiled its Savings and Investment Union proposals to try and do just this, by making it easier for consumers to invest and save for their pensions.
Addressing the problem
The Commission intends to develop supplementary (i.e. non-state) pensions, by revising the Pan-European Pension Product and encouraging auto-enrolling consumers into savings plans. There are also plans to facilitate consumer access to savings and investments accounts, by encouraging EU countries to simplify taxation and ensure a wide range of appropriate products.
But product quality will be key here. Products must offer strong returns and low costs, as well as being widely distributed. Proven models already exist, including the British pillar two system (workplace plans with employer and employee contributions), the Swedish model, and the Dutch system. Our German member, vzbv, proposed a pillar three solution (i.e. a private scheme in addition to state and occupational pensions) at the national level in 2019.
Above: attractive pension products will be key to ensuring consumer engagement.
Furthermore, countries should allow cross-border consolidation of funds and industry players. Strengthened EU-level supervision – as the Commission proposes – would facilitate this. This would benefit consumers by offering greater product choice and ensuring the same rules apply everywhere, not just in theory but in practice.
Finally, these proposals come as the EU is making strides to simplify regulations. Much of the complexity in financial services comes from a lack of political will in fixing structural issues, with vested industry and national interests stalling reform. For the Savings and Investment Union to succeed, it must go beyond just incremental change, such as simply providing more information to consumers.
A win-win for pensions and the economy
If Europe gets this right, it will be a win-win for both the economy and consumers’ pensions and investments.
For far too long now, consumers have been missing out due to unattractive investment products that offer low returns.
Much of these EU plans will now depend on national governments being ambitious in their implementation. If they are, then Europe will be able to mobilise the funds it needs to revitalise its economy, whilst ensuring that consumers can benefit from a comfortable retirement.