The European Commission is considering tying pension reform to cash payouts from the EU’s next €2 trillion budget as it attempts to protect member countries’ finances from a looming demographic crisis.

Three EU senior officials told POLITICO that the EU executive’s economic and finance legislative arms are looking into buttressing countries’ creaking state pension systems by recommending retirement savings policies to individual countries.

If EU capitals ignore these country-specific recommendations, or CSRs, then they might not get their full share of the EU’s seven-year budget from 2028.

“Our job in the Commission is to help countries do the difficult stuff,” said a senior Commission official, who, like others quoted in this story, spoke on the condition of anonymity to speak freely. “CSRs would be well suited to do it” by “linking reforms to investment.”

The EU faces a toxic cocktail of high debt, an aging population and declining birthrates. Combined, they will cripple any public “pay-as-you-go” pension system that relies on taxpayers to provide retirees with a source of income.

That’s a problem today as well as tomorrow. Over 80 percent of EU pensioners relied on a state pension as their only source of income in 2023. That overreliance has left one in five EU citizens above the age of 65 at risk of poverty, the equivalent of 18.5 million people.

Brussels’ goal is twofold: Alleviate the pressure on the state coffers to keep pensioners afloat, and help create a U.S.-style capital market by putting people’s long-term savings to work.

The idea, while well-intended, would be politically difficult and has deputy finance ministers wincing at the thought.

Pension policy lies well outside of the EU executive arm’s legal reach. Even then, the risks of tying EU funds to politically toxic issues could spell disaster for governments, especially when democracy’s most loyal participants are above the age of 50.

“You can’t buy pension reform,” said a deputy finance minister. “It’s going to hit the nerve of what democracy is about.”

Pension reform also has a habit of bringing protesters onto the streets. In Brussels, police clashed with trade unions on Tuesday, who were demonstrating over austerity measures that include raising the age of retirement from 65 to 67 by 2030. Belgium got off lightly when compared to France, which witnessed months of protests in 2023 when President Emmanuel Macron raised the retirement age from 62 to 64.

Even then, France’s recently reinstated prime minister, Sébastien Lecornu, announced Tuesday that he’d put Macron’s pensions reforms on ice to overcome a parliamentary crisis that’s made it impossible to pass a budget. Postponing the reforms could cost Paris up to €400 million next year at a time when the government tries to tighten its belt and reduce the country’s ballooning debt burden.

The Commission’s focus would stop short of setting retirement age or mandating monthly payouts to pensioners. Brussels’ reform plans instead home in on incentivizing citizens to save for retirement and encouraging companies to offer corporate pension plans to employees.

CSRs are part of an annual fiscal surveillance exercise that the Commission uses to coordinate economic policies across the bloc. These recommendations are negotiated with EU capitals in a bid to fix a country’s most pressing economic problems. The Commission doesn’t consider this coercion, just sound economics.

“If it’s on pensions, then so be it,” a second senior Commission official said.

Post-pandemic carrots and sticks

EU capitals have had a habit of ignoring CSRs in the past. That could change if the Commission adds cash incentives, an idea that was born out of the EU’s €800 billion post-pandemic recovery fund.

The Commission also saw an opportunity to incentivize governments to enforce costly reforms to modernize the bloc’s economy by setting targets that’d unlock EU funds in tranches. For countries like Spain, these included pension reform.

The carrot and stick strategy proved such a hit within the Berlaymont that it wants to use the same system in the next EU budget, especially if it helps add teeth to CSRs.

Not everyone’s a fan. The mountains of paperwork that governments had to amass to prove they’d met the Commission’s demands slowed progress, leaving hundreds of billions of euros on the table.

“We don’t know why the Commission is so fond of this model,” said another deputy finance minister, who poured cold water on the idea. “[Pension reform is] hugely controversial. I highly doubt anyone’ll do it.”

Giorgio Leali contributed reporting from Paris.