The European Commission has recently submitted its proposal for a regulation on a pan-European Personal Pension Product (PEPP). CEC European Managers welcomes the establishment of such pan-European retirement products as a contribution to facilitating labour market mobility and capital market competition. However, this individual pension solution should not infringe on existing collective occupational pensions as the second pillar of pension systems. Until today occupational pensions have proven to be a resilient complement to public pensions and in many instances also a viable alternative to private individual pension products, especially in terms of accessibility and cost-efficiency.
The proposal on establishing pan-European Personal Pension Products (PEPP) foresees adding a voluntary pan-European framework for pensions in all member states. However, for legal reasons, the mere obligation for member states to admit PEPPs (as designed by the planned EU regulation) would not suffice to guarantee their success among consumers and employees. Many crucial legislative powers such as the fiscal treatment of contributions and benefits for retirement products lie with the member states. Therefore, the proposal is complemented by the recommendation to guarantee equal treatment compared to domestic pension products even if the core product features of PEPPS do not match all national criteria for tax relief.
According to the current draft, individuals who purchase a PEPP would have the possibility to choose amongst European pension product providers with transparent asset portfolios. Consumers will have a choice between a safe default investment option and alternative options with different risk-return profiles. The products will benefit from EU-wide portability, full transparency of the costs of the PEPP and the ability to switch providers. A broad range of actors (banks, insurers, asset managers, occupational pension funds, investment firms) are to be entitled to provide these products.
In sum, CEC European Managers welcomes PEPP as a complementary element for pension systems, especially in states where the second pillar of pension systems is weak, as well as a solution for highly mobile managers. It could also increase the internal coherence of financial markets within the EU. Currently, the functioning of the internal market for personal pensions is impeded by the high degree of fragmentation between national markets and the limited degree of portability of personal pension products. This can make it difficult for individuals to make use of their basic freedoms.
Occupational pensions should, however, remain integrated into a sustainable pension system composed of the three pillars of public, occupational and individual pensions.
More information on occupational pensions here
Read the PEPP proposal here