Swedish Minister urges Europe to use pensions for capital markets growth

More European countries should adopt funded pension systems to strengthen capital markets across the European Union, Sweden’s financial markets minister said on Friday.

The EU is working to create a unified capital market across its 27 member states to reduce companies’ dependence on national banking systems and improve access to cross-border funding.

The initiative aims to provide businesses with broader access to equity and alternative financing channels.

Speaking at an event hosted by Nordic banking group Nordea in Helsinki, Niklas Wykman highlighted the importance of having sufficient capital within financial markets to make such integration meaningful.

"You could have a union, but it's not ⁠worth very much if you don't have capital in the market," Wykman said.

Nordic pension models seen as blueprint

Wykman pointed to pension systems in Sweden, Finland, Denmark, and the Netherlands as examples of how funded schemes can support capital market development.

These systems allocate a portion of pension contributions into financial assets, generating returns that help fund future pensions.

He emphasised the need for broader adoption of similar models across Europe, particularly in larger economies that rely heavily on pay-as-you-go systems.

"We need to convince our partners throughout Europe to have a less pay-as-you-go system and ‌a ⁠more funded pension system," Wykman said, urging reform among major EU member states.

Disparity in pension asset accumulation

Citing data from the Organisation for Economic Co-operation and Development, Wykman noted a significant imbalance in pension asset accumulation across the bloc.

Sweden, Denmark, and the Netherlands together accounted for roughly two-thirds of the EU’s total accumulated pension assets between 2022 and 2024.

In contrast, larger economies such as Germany, France, Italy, and Spain, where pay-as-you-go systems dominate, held only 22% of the total during the same period.

This disparity, according to Wykman, underscores the role funded pension systems can play in channelling long-term savings into capital markets, thereby enhancing financial depth and resilience.

EU pushes for faster financial integration

At the same event, Maria Albuquerque stressed the urgency of completing the EU’s financial integration efforts amid increasing global competition.

She called for the rapid establishment of a fully integrated financial services market, noting that EU governments have already agreed to conclude negotiations on the CMU by the end of the year.

"The longer we wait, the further our competitors move ahead, and the smaller Europe becomes in the rear-view mirror," Albuquerque said.

Her remarks highlight growing concerns within the EU that delays in financial reform could erode the bloc’s global economic standing, particularly as other regions continue to advance their capital markets and investment ecosystems.

Capital Markets Union remains a central priority

The push for pension reform aligns with broader EU efforts to mobilise private capital and improve investment flows within the bloc.

By encouraging funded pension systems, policymakers aim to unlock long-term savings that can be directed into equities and other financial instruments.

As discussions continue, the debate over pension structures is likely to remain a key component of the EU’s strategy to build a more integrated and competitive financial system.