Last week, the European Commission unveiled its roadmap for the Union of Savings and Investments (USI), presented as “a key initiative to channel savings into productive investments.” At the Global Asset Management Conference organized by ALFI, Forbes interviewed Serge Weyland, director of the Luxembourg Investment Funds Association, on this topic, which is particularly important to him.
Serge Weyland, what is your reaction to the European Commission’s strategy on the Union of Savings and Investments?
This is a subject we have worked on extensively. At ALFI, we had many discussions with the European Commission and the European Parliament in the lead-up to this initiative. We were very pleased to see that several of our recommendations were included. The starting point is simple: Europeans save a lot, but they do not invest. The average net financial assets of a European citizen amount to €50,000—five times less than an American citizen, who actually saves less. This shows that we have a problem with savings performance. European savers leave their money in savings accounts or low-yield deposit accounts.
The second structural issue is that our pension systems are almost entirely based on pay-as-you-go schemes. Capital-funded pensions represent only about 12% of GDP in Europe, compared to 160% or 170% in the United States. However, there are European examples that prove it is possible to change this.
“For retirement savings, portfolios should be 100% equity-based in the early decades, gradually rebalancing towards bonds over time.”
You refer to Sweden as an example…
Exactly. In 20 years, Sweden has gone from 12% to 120% of GDP in capital-funded pensions. Their model is very interesting. Each employee is required to contribute 6 to 7% of their salary into funds that they can choose themselves from a state-approved selection. It is efficient, transparent, and contributes to citizens’ financial education.
What is your proposal?
If we want to make our pension systems sustainable, we need to rely on capital funding. Everyone knows this. With current demographics, the pay-as-you-go system will not hold. Either we will have to contribute more, work longer, or receive lower pensions—it will likely be a mix of all three. The European Commission rightly emphasizes the need to develop Pillars II and III, meaning occupational pensions and individual retirement savings. However, in Europe, there is no common regulatory framework for the second pillar. Each country does things its own way, often inefficiently.
Today, in many countries, if an employer wants to set up a supplementary pension plan for employees, they must go through an insurance provider. However, insurers are not allowed to advise on the investment products included in the contract. They provide a list of funds, but the employer must guide their employees. On top of that, the default option is often a guaranteed capital fund, which makes no sense for long-term savings. Guaranteed capital means returns of just 1 to 2% over the long run—often below inflation.
For example, €10,000 placed in a French Livret A savings account 20 years ago has generated about €4,000 in real value. The same amount invested in a diversified equity fund would have yielded €50,000. This is the real issue: we overprotect savers and prevent them from growing their capital. This logic needs to be reversed. For retirement savings, portfolios should be 100% equity-based in the early decades, gradually rebalancing towards bonds over time. This is the only strategy that makes sense.
You also criticize member states’ protectionism when it comes to savings…
French life insurance is a perfect example. The French Insurance Code requires that only French-regulated alternative investment funds be eligible for life insurance contracts. We talk about a Capital Markets Union, yet at the same time, domestic markets are being locked down. The same happens in Italy and Spain, where tax incentives are reserved for national products. The result? Market fragmentation that prevents investors from accessing the best, often cheaper, products available elsewhere. It is inefficient and costly.
As Mario Draghi once said, there are two types of states in Europe: small ones, and those that have not yet realized they are small. We can no longer think in silos. We need to create incentives for investment in Europe, not just within national borders.
“[…] we identified the key obstacles: 95% of them are not related to regulators but rather to tax laws, labor laws, and local practices.”
Some argue for a centralized European supervisory authority under ESMA (European Securities and Markets Authority), based in Paris, to harmonize practices and achieve a true Union of Savings and Investments. What is your opinion?
I am against it because it does not solve the real issues. When proposing reforms, we must first ask: what problem are we trying to solve? Today, leading European asset managers are not asking for centralization under ESMA. Why? Because ESMA is not ready. It lacks the necessary expertise and resources. More importantly, centralization does not address the real barriers to progress.
At ALFI, we identified the key obstacles: 95% of them are not related to regulators but rather to tax laws, labor laws, and local practices. Moving supervision to Paris will not change anything. Worse, we risk losing local expertise.
Some believe regulatory fragmentation leads to forum shopping and weakens investor protection…
That may be true for certain products, like structured investments, but not for asset management. In any case, ESMA already has the tools to act—it should use them.
Luxembourg has developed unique expertise, particularly in international fund distribution. The Luxembourg financial regulator (CSSF) has 450 people dedicated to fund supervision. It has established bilateral relationships with all major distribution markets, from Brazil and Chile to Hong Kong and Singapore. You cannot simply relocate such expertise overnight.
Can a Union of Savings and Investments truly work with 27 different regulators?
Yes, provided that harmonization happens where it is necessary. Europe needs a common regulation on pensions for Pillars II and III, just as we did with the MiFID directive for investment products. This is the real challenge. But it requires political courage.
When it comes to pensions, people take to the streets. But if we do nothing, we are heading for disaster. Today, the average replacement rate (the percentage of pre-retirement income retained in retirement) in Europe is 60%. In 20 to 30 years, it could fall to 30%. We must stop dreaming of magical solutions like a single supervisory authority. What angers me is that we avoid the real issues due to a lack of political will.
“We should leverage these strengths to develop a Capital Markets Union—not dismantle them for an uncertain outcome.”
Shouldn’t regulatory harmonization in Europe start with specific products, like crypto-assets?
Luxembourg has always been very cautious about this issue. Personally, I have never considered crypto-assets as investment products but rather as a store of value. Centralizing oversight under ESMA? Maybe. But that would set a precedent.
The current regulatory structure makes sense. It combines local expertise under ESMA’s umbrella. We need to strengthen coordination, not centralize everything. France has an excellent regulator, but it is not equipped to oversee products distributed in 80 countries. Luxembourg is. We have built expertise. We should leverage these strengths to develop a Capital Markets Union—not dismantle them for an uncertain outcome. Each country is different.
