Europe is failing to fully leverage its household savings, with €10trn--41% of total household financial assets--remaining in cash and savings accounts rather than being actively invested, according to the Association of the Luxembourg Fund Industry (Alfi). In contrast, only 16% of household wealth in the United States is held in cash and savings, highlighting a stark difference in investment culture. On Friday 14 March 2025, Alfi on the European Commission to implement policies that would unlock these funds, stimulate investment and drive long-term economic growth.

The association proposed several policy measures at both the national and EU levels, focusing on financial education, pension reform and accessible investment products.

Retail savings

A key recommendation was to instil investment habits from an early age. Alfi suggested introducing mandatory financial education in schools, covering topics such as compound returns and long-term investing. It also proposed creating investment accounts for children as an alternative to traditional savings accounts, aiming to foster early exposure to investment principles. Additionally, an EU-wide investor education campaign targeting adults was recommended to improve financial literacy and support pension reforms.

To further build an investment culture, Alfi suggested launching competitions for students, rewarding the best-performing ‘mock portfolio managers’ with contributions to their investment accounts. The report highlighted that similar initiatives in other regions had successfully encouraged long-term investment behaviour.

European pension systems

With Europe facing significant demographic challenges, Alfi underscored the need to modernise pension systems, particularly second-pillar pension schemes. The trade group proposed the introduction of an EU-wide pension tracking tool to provide transparency on retirement expectations. It also recommended a best practices framework focused on efficiency, broad eligibility and simplified participation for both employers and employees.

The association argued that second-pillar pension schemes should be accessible to multiple providers--including banks, insurers and asset managers--to foster competition and reduce costs. Beneficiaries should have the freedom to choose their allocations and investment products, a measure that Alfi claimed would enhance financial literacy and market participation.

Alfi also called for reforms in pension investment strategies. It recommended limiting capital-guaranteed products to individuals nearing retirement due to their low yields. Default investment solutions should prioritise long-term growth, with higher equity exposure for younger investors and life-cycle investing strategies. Pension schemes should also facilitate investments in private assets, which could provide additional returns and support the broader economy.

The report advocated for auto-enrolment in second-pillar pension schemes, requiring contributions from both employers and employees, with incentives such as targeted tax benefits. Ensuring cross-border pension portability and consistent tax treatment was also highlighted as a means to enhance pension mobility and integrate European capital markets.

To support these measures, Alfi urged the removal of regulatory barriers to the Institutions for Occupational Retirement Provisions (IORP) and the Pan-European Personal Pension Product (Pepp), allowing for a unified pension framework across the EU. The association argued that simplifying pension products would encourage participation and improve financial security in retirement.

Investment savings accounts

Alfi proposed the introduction of investment savings accounts (ISAs) as an accessible entry point into long-term savings and investment. These accounts would be available through banks, insurers, investment fund managers, and investment firms, covering a broad spectrum of assets including equities, bonds, Ucits, ETFs, and private assets via Alternative Investment Funds (AIFs) or European Long-Term Investment Funds (Eltifs).

The report suggested that ISAs should benefit from uniform tax treatment, with tax-deductible contributions and tax-free growth, to encourage participation. Alfi warned against imposing fee caps or mandatory EU investment allocations, arguing that such restrictions could limit the effectiveness of the initiative. It maintained that ISAs represented a proven model that could be implemented without the complexity of creating new regulatory structures.

Regulation

While advocating for regulatory convergence across Europe, Alfi opposed the creation of a centralised supervisory authority. The association argued that national regulators should retain their agility and expertise in managing asset management regulations. According to Alfi, centralising supervision would introduce additional complexity and costs without effectively addressing barriers to fund distribution or increasing investment in capital markets.

The report concluded that unlocking Europe’s household savings required a combination of financial education, pension reform, and accessible investment products. By implementing these measures, the European Commission could stimulate investment, strengthen financial stability and drive long-term economic growth across the continent.

The three-page report is available .