As announced during the mid-term review of the Capital Markets Union, the European Commission on Thursday 29 June presented a proposal to create a new category of pension products: the Pan-European Personal Pension Product (PEPP).
This proposal, which forms a response to the fragmentation of the European personal pensions market, will lay the foundation for a single European pensions market, said the European Commissioner for Financial Services, Valdis Dombrovskis.
Currently, the market is concentrated in a small number of member states, such as Germany, Spain, Austria, Sweden and Slovenia, and virtually non-existent in others, particularly Portugal and certain Eastern European countries, a Commission official explained.
PEPPs, which will have the same basic characteristics throughout the Union, will make it possible to promote competition between pension providers and steer savings towards long-term investments whilst ensuring solid protection for consumers.
These pan-European products may be offered by a broad range of providers such as banks, insurance companies, occupational pension funds, investment companies and asset managers. Coming on top of existing national pension schemes, they will neither replace nor harmonise the national regimes.
A quality-control label
To qualify to offer PEPPs, providers must first of all obtain authorisation from the European Insurance and Occupational Pensions Authority (EIOPA). Once the product has been accredited, it will be labelled and may then be sold throughout the EU. In order to ensure high quality standards, EIOPA will be authorised, amongst other things, to withdraw authorisation for the product, if the provider no longer complies with the requirements laid down for PEPPs.
Increased competition and a range of investment options
Savers will be able to choose between five investment options, including a default investment option that will guarantee that they get back at least the amount of capital invested, by using risk offsetting techniques. The proposal also aims to be flexible and will offer savers the option to change provider, either at national or cross-border level, every five years, for a cost that will be capped.
EU-wide portability guarantee
One of the new ideas in the Commission’s proposal is that PEPPs will be transferable between member states, without the need to change provider. As the system works on the basis of ‘national compartments’, consumers will have the option to transfer their assets from one compartment to another, if they move to a different member state.
This proposal comes with a recommendation aimed at the member states in which the Commission encourages them to give this product the same tax treatment as similar national products already in place.
This is a pre-requisite for the new product to be a success, Dombrovskis explained, although he acknowledged that it would not be possible to achieve full harmonisation of direct taxation at European level. “EU citizens – the younger ones in particular – will not forgive politicians and governments if they let this vital initiative fail”, commented Guillaume Prache, managing director of Better Finance, in a press release issued on same day.
The legislative proposal – which has been broadly welcomed by the stakeholders, particularly PensionsEurope, Insurance Europe, AMICE, and Finance Watch - will now be put before the European Parliament and the Council. The new pan-European product is expected to be up and running by 2019. (Original version in French by Marion Fontana)