Closing Europe’s Risk Capital Gap: The Role of Funded Pensions

Europe faces a growing challenge: mobilizing sufficient long-term capital to support innovation, infrastructure, productivity growth, and economic competitiveness. This paper examines how pension system design influences the availability of risk capital within an economy.

Comparing countries that have adopted funded pension systems with those that rely more heavily on pay-as-you-go structures, the authors find substantial differences in the amount of long-term capital available for investment. They also identify common characteristics of successful pension reforms, including strong governance, scale, professional management, portability, broad participation, and effective incentives.

For pension executives, institutional investors, finance ministries, and central banks, the paper demonstrates that retirement systems influence much more than retirement security. Pension policy affects capital formation, investment horizons, market development, and the capacity of economies to finance long-term priorities.

The findings are particularly relevant in a world facing demographic pressures, fiscal constraints, and growing investment needs related to infrastructure, innovation, and economic transformation. For GRI members, the paper highlights a critical long-term structural challenge: how retirement systems shape the availability of patient capital and, ultimately, the resilience and competitiveness of economies and financial markets.