Jorik van Zanden, strategy consultant at AF Advisors in the Netherlands, issues a warning to the European Parliament on the back of its initial proposals for IORP II, the EU pension fund legislation
The review of the IORP II Directive is the most consequential piece of European pension regulation in a decade. It arrives wrapped in the language of the Savings and Investments Union (SIU): mobilising long-term savings, deepening capital markets, financing growth, innovation, and the green transition. These are worthy ambitions, and precisely because of that, a warning is in order. The IORP II Directive exists, first and foremost, to protect the interests of pension scheme members and beneficiaries. Everything else is secondary.
The capital belongs to the members who earned it, held in trust for their retirement. The prudent person principle codifies exactly this: assets shall be invested in the best long-term interests of members and beneficiaries. The fiduciary obligation sits at the level of the institution, where knowledge of the scheme, its members, and its liabilities resides. It does not sit in Brussels, and it does not sit with national parliaments either.
The Draghi and Letta reports have correctly diagnosed Europe’s capital allocation problem: ample household savings, scarce risk capital. Pension funds, with their trillions in patient assets, look like the obvious solution. And so the reflex emerges to treat the IORP framework not as member protection legislation but as a delivery mechanism for the SIU.
This is by no means a by-product of European pension architecture. Across many jurisdictions, the prudent person principle is put under pressure. Governments see the long-term capital of pension savings as an ideal way to finance domestic interests. In the UK, Mansion House Accord signatories pledged to invest more capital into domestic private markets. In the US, some states restricted investments in ESG as part of the fiduciary rule. Other countries, such as Brazil, instil strict quantitative restrictions on the portfolio as a whole.
Recently, the EU has also shown interest in regulating the investments of pension funds further. In the draft report of the ECON Committee of the European Parliament it is proposed to require funds managing more than €1bn to invest at least 2% of their assets under management in venture capital.
However well-intentioned, a quantitative investment mandate inverts the logic of the directive and fiduciary responsibility. If venture capital is attractive for a given scheme, the prudent person principle already permits it. If it is not, no directive should compel it.
There is an irony here that deserves to be named. The Commission’s own review moves in the opposite, and in my opinion better, direction: it strengthens the principles-based character of the prudent person rule and curtails the ability of member states to impose blanket restrictions on asset classes.
The review aims to remove barriers to investing in infrastructure, private equity, and private debt; it does not command such investments. That is the right model. Enable access, ensure governance, and trust fiduciaries. Mandating allocations, whether restrictive or expansive, is the same mistake in different directions.
None of this means the attention to innovation and investment is misplaced. It is genuinely good that the review takes capital markets seriously. A pension promise is only as strong as the returns that fund it, and members are ill-served by a regime that traps their savings in low-yielding instruments out of misplaced caution.
We should also be honest about what a directive can and cannot do. Pensions remain a member state competence; the IORP II Directive rests on Article 114 TFEU, the internal market basis, and takes the form of minimum harmonisation. It cannot redesign national pension systems, cannot touch tax, cannot override the autonomy of social partners, and depends on transposition by 27 legislators with 27 different pension traditions.
The first IORP II Directive promised cross-border consolidation and deeper markets; the European Court of Auditors concluded in 2025 that coverage remained stalled and the sector fragmented. In my opinion, the lesson here is not that the instrument failed, but that its reach was always limited.
Expecting a directive to deliver the SIU is expecting a screwdriver to build a house. The heavy lifting, auto-enrolment, fiscal incentives, market integration, and supervisory convergence belong to other instruments and, mostly, to member states themselves.
Therefore, I would strongly advise the European Parliament to let the division of labour be clear. The SIU should be built by making European capital markets worth investing in: deeper, more liquid, more integrated. Do that, and pension money will flow toward European assets because it serves members, not because it was ordered to.
The IORP II review should be judged by one question only: does it leave members better protected and better served? Where it removes barriers, improves governance, and sharpens accountability, the answer is yes. Where it is tempted to conscript members’ savings for other goals, lawmakers should resist, however noble those goals may be.
Europe’s pension funds can be the patient capital its markets have long lacked. But they will only earn that role by doing their actual job: securing the retirement of the people whose money it is.
Jorik van Zanden is a strategy consultant at AF Advisors
