Unlocking Europe's Savings and Investment Potential

• Europe has an untapped opportunity to transform household savings into powerful investments, driving the Savings and Investments Union (SIU) forward.
• With the right policies and initiatives, Europe can pave the way for a new era of financial empowerment and economic growth.
• The SIU must focus on activating retail savings to turn dormant cash into dynamic investments.

• A key focus should be on strengthening pension systems, complementing Pay-as-You-Go models with funded pensions, securing long-term financial means, and promoting second-pillar occupational pensions.

A blueprint to unlocking Europe’s savings and investment potential

Europe's capital markets are at a pivotal moment. While Europeans save a significant portion of their income, they often fail to unlock the potential of these savings through investment. In contrast to other regions, where household wealth is actively invested, Europe’s financial assets largely remain dormant in cash and savings accounts. This presents both a challenge and an opportunity.

Currently, EUR10 trillion of household wealth in Europe (41%) is held in cash and savings, compared to EUR13 trillion (16%) in the US. This substantial difference highlights the need to mobilise these funds into productive investments.

By activating Europe’s €33.5 trillion in household financial assets we can accelerate growth in Europe, and fuel a new era of financial empowerment. Key to this transformation is unlocking the vast potential of retail savings, particularly by promoting second-pillar occupational pensions through auto-enrolment, adequately designed investment solutions and targeted tax incentives. These solutions will not only benefit individuals, but also drive economic growth and financial stability across the continent.

In order to foster a true investment culture in Europe, ALFI recommends a set of concrete actions designed to unlock Europe’s savings potential, stimulate investment, and drive long-term economic growth, that can be implemented at both national and EU levels. While many of these levers fall within the powers of national governments, EU institutions can play a key role in guiding and encouraging fundamental reforms.

a) Mobilising younger generations

• Financial education in schools: Introduce mandatory lessons focusing on fundamentals of investing, including compound returns, long-term investing, and understanding market risks.
• Investment accounts for children: Promote investment accounts over savings accounts, fostering long-term investment habits from a young age.
• Building an investment culture: Launch annual events and competitions for students, rewarding the best “mock portfolio managers” with contributions to their investment accounts.
• EU-wide investor education campaign: Tackle adult financial literacy to support pension reforms and empower citizens to make informed investment decisions.
  
  

b) Strengthening European pension systems

As Europe faces significant demographic challenges, modernising pension systems—particularly second-pillar pension schemes—is crucial:

• Pension tracking tool: Introduce an EU-wide tool to track first-pillar pensions and later expand to second and third pillars, based on transparent, demographically sensitive rules that give citizens a clear view of their retirement expectations.
• Best practices framework: Focus on transparency, efficiency, broad eligibility of pension schemes, and simplified participation for employers and employees.
• Encouraging competition and beneficiary choice: Second pillar pension schemes should be accessible to multiple providers (banks, insurers, asset managers) to ensure competitive costs. Beneficiaries should have the freedom to choose their allocations and investment products, as this has proven to enhance financial literacy and market participation.
• Investment strategies and default options: Capital-guaranteed products should be limited to those approaching retirement due to their low yields. Default investment solutions should focus on long-term growth, with high equity exposure for younger investors and life-cycle investing strategies. Providers should offer guidance tools and model portfolios to assist employees in making informed decisions.
• Supporting the real economy: Pension schemes should allow allocations to private asset investments.
• Promote auto-enrolment and portability: Employees should be automatically enrolled, with both employers and employees required to contribute, supported by targeted tax incentives. Additionally, ensuring cross-border pension mobility and consistent tax treatment will help mobilise bank deposits into the economy.
• Enhance IORP (Institutions for Occupational Retirement Provisions) and PEPP (Pan-European Personal Pension Product)
• Frameworks: Eliminate regulatory barriers to foster cross-border pension solutions. Allow for a unified, scalable pension product to simplify saving for retirement.

c) Investment Savings Accounts (ISAs)

An ISA could be an additional entry point to savings products or pillar 3 pension schemes and be combined with targeted tax incentives:

ISAs should:

• Cover a broad spectrum of assets like equities, bonds, UCITS, and ETFs. Investments into private assets via Alternative Investment Funds or ELTIFs should also be possible.
• Be easily accessible through banks, insurers, investment fund managers and investment firms.
• Be available to minors, encouraging early financial literacy.
• Operate with uniform, simple tax treatment—tax-deductible contributions with tax-free growth.
• Avoid unnecessary restrictions such as fee caps or mandatory EU investment allocations.
• ISAs offer a proven model, ready to be implemented without the complexity of new labels or agencies.

d) Supervisory convergence, not centralisation

We support regulatory convergence while maintaining national expertise by upholding a decentralised supervision model. National authorities should retain agility and adaptability in managing asset management regulations. A centralised supervisory body would add complexity and costs without solving existing barriers to fund distribution. Changes to the current supervisory framework would not result in directing any additional savings to capital markets in Europe and would be an unnecessary distraction.

Download the brochure.

Download the press release in pdf.

ENDS

For more information, please contact:

ALFI

Luigi Salerno

ALFI Head of Communications Luigi.Salerno@alfi.lu

Peregrine Communications

ALFI@peregrinecommunications.com

Notes to editors:

About ALFI

The Association of the Luxembourg Fund Industry (ALFI) represents the face and voice of the Luxembourg asset management and investment fund community, championing mainstream, private assets and sustainable investing. ALFI seeks to promote Luxembourg’s fund sector internationally, and to cultivate for the benefit of its members a collaborative, dynamic and innovative ecosystem underpinned by the most robust regulatory framework. ALFI’s ambition is to empower investors to meet their life goals.

The Association today represents over 1,400 Luxembourg domiciled investment funds, asset management companies and a wide range of business that serve the sector. Our members are investment funds, management companies, asset managers, alternative investment fund managers (AIFMs), depositary banks, legal and consultancy firms, tax advisory firms, auditors and accountants, specialised IT and communication companies and individual members.

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