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Thursday, 18.04.2024, 09:01
Bridging the pensions gap: Commission suggest Pan-European Personal Pensions
The reasoning
behind the new Pan-European Personal Pension Product (called PEPP) is simple
enough. Europe is facing an unprecedented demographic challenge: in 2060, for
every retired person there will be only two people of working age, compared to
four people presently. Social and welfare
systems in the member states are already coming under pressure. Hence, the
EU states urgently need to bridge the pension’s gap created by the ageing
population.
Introduction.
The PEPP is one of the key measures announced
in last month's Mid-term Review of the Capital Market Union, the Commission's
project to create a single market for capital in the EU. The PEPP supports the
goal of the CMU, which is to create the right conditions to unlock funding so
that it can flow from Europe's savers to Europe's businesses.
Currently, only
27% of Europeans between 25 and 59 years old have enrolled themselves in a
pension product. PEPP would contribute to unlocking this vast potential and
boost investment in our economy.
Presently proposed
Regulation builds on almost 600 contributions to the Commission’s public
consultation on personal pensions in October 2016. Many respondents said the
current supply of personal pension products in the EU was insufficient. It also
took into account two reports from EIOPA in 2014 and 2016 and several external
studies.
Alongside
occupational pensions, personal pension plans are part of the solution to
supplement state-based pensions. Presently only about a third Europeans save in
some sort of private pension.
This is linked to
the underdevelopment of the personal pensions market. In many EU states, supply
is limited, and savers often face limited competition, hidden fees and
expensive or no switching between providers. For those providers wishing to
develop EU-wide products, a patchwork of rules stands in the way.
The new type of
voluntary personal pension is designed to give savers more choice when they are
putting money aside for old age and provide them with more competitive
products.
PEPPs will have
the same standard features wherever they are sold in the EU and can be offered
by a broad range of providers, such as insurance
companies, banks, occupational pension funds, investment firms and asset
managers. They will complement existing state-based, occupational and
national personal pensions, but not replace or harmonise national personal
pension regimes. The new products will also ultimately bolster the Commission's
plan for a Capital Markets Union by helping to channel more savings to
long-term investments in the EU.
PEPP’s new features. PEPP
would offer high-quality personal pensions to savers across the EU based on a
single standard. PEPP will have several features inspired by existing pension
products, e.g.:
·
It will be a simple product for
savers, with only up to 5 investment strategies;
·
It will include a default,
low-risk investment option, and strong rules on risk mitigation;
·
It will cap the costs of
switching from one provider to another;
·
It will be a transparent
product, with mandatory information on fees and investment; and
·
it will be flexible, offering
the possibility to change investment strategy every 5 years and choosing how
benefits are paid out.
All these features
will be harmonised at EU level, and providers will only need one product
authorisation to offer a PEPP across the EU. This highlights two further
advantages of PEPP:
first, it would be
portable – i.e. savers would be able to move their pension plan across national
borders without switching provider. Many stand to benefit from this, such as
mobile workers, students studying for a degree in another EU country, and those
wanting to retire abroad.
And second, it is expected to achieve
economies of scale and lower costs, which would make it an affordable product.
In many countries,
tax incentives are a key driver for the take-up of personal pension products.
This is why the Commission recommends the member states to grant the same tax
treatment to the PEPP as to largely comparable national pension products. Hence,
the states are invited to exchange best practices on the taxation of personal
pensions, to promote a more consistent approach in the EU.
The success of the
new Pan-European Personal Pension Product lies also is in perspective
investments so much needed in European economy. By creating such an attractive
long-term investment product, the Commission is hitting two targets: a) putting
savings to long-term productive use, and b) providing future pensioners with
critical revenue during their old age.
Source: Commission
vice-president V. Dombrovskis speech, 29.06.2017, in:
http://europa.eu/rapid/press-release_SPEECH-17-1841_en.htm?locale=en
Commission Vice-President, responsible for Financial Stability, Financial Services and Capital Markets Union, Valdis Dombrovskis underlined that the pan-European personal pension product was an important milestone towards completing the Capital Markets Union. It has enormous potential as it will offer savers across the EU more choice when putting money aside for retirement. It will drive competition by allowing more providers to offer this product outside their national markets. “It will work like a quality label and PEPP will also foster long-term investment in capital markets”, he added.
Vice-President Jyrki Katainen,
responsible for Jobs, Growth, Investment and Competitiveness said that “Pan-European personal
pension products would act to promote competition amongst pension providers,
granting consumers more choice of where to place their savings”. Completing the
capital market union, he argued, would be also an important element of the
Investment Plan for Europe. Thus, new proposal will also work to channel
savings towards long-term investments, helping to upgrade infrastructure, boost
growth and support jobs.
PEPP’s key
benefits. Currently, the European market for
personal pensions is fragmented and uneven. The offers are concentrated in a
few EU member states, while in some others they are nearly non-existent. This
variation in supply is linked to a patchwork of rules at EU and national
levels, which impede development of a large and competitive EU-level market for
personal pensions. The PEPP will allow consumers to voluntarily complement
their savings for retirement, while benefitting from solid consumer protection.
Main benefits can
be summarized in the following way:
·
PEPP savers will have more
choice from a wide range of PEPP providers and benefit from greater
competition.
·
Consumers will benefit from strong
information requirements and distribution rules, also online.
Providers will need to be authorised by the European Insurance
and Occupational Pensions Authority (EIOPA) to provide the PEPP.
·
PEPP will grant savers a high
level of consumer protection under a simple default investment
option.
·
Savers will have the right to switch
providers – both domestically and cross-border - at a capped cost
every five years.
·
The PEPP will be portable
between Member States, i.e. PEPP savers will be able to continue contributing
to their PEPP when moving to another EU state. The regulatory framework that
the Commission is proposing will create opportunities for a wide range of
providers to be active on the personal pension market:
·
Providers will be able to
develop PEPPs across several EU states, to pool assets more effectively and to
achieve economies of scale.
·
PEPP providers will be able to
reach out to consumers across the whole EU through electronic
distribution channels.
·
PEPP providers and savers will
have different options for payments at the end of the
product's lifetime.
·
PEPP providers will benefit
from an EU passport to facilitate cross-border distribution.
The proposal for
the PEPP Regulation is accompanied by a Commission Recommendation on
the tax treatment of personal pension products, including the PEPP.
The Commission encourages EU states to grant the same tax treatment to PEPPs as
is currently granted to similar existing national products, even if the PEPP
does not fully match the national criteria for tax relief. EU states are also
invited to exchange best practices on the taxation of their current personal
pension products which should foster convergence of tax regimes.
The PEPP proposal
will now be discussed by the European Parliament and the Council. Once adopted,
the Regulation will enter into force 20 days after its publication in the
Official Journal of the European Union.
More
information on: = MEMO; = Factsheet;
= DG
FISMA website on Personal Pensions Products; = CMU
Action Plan Mid-Term Review
http://europa.eu/rapid/press-release_IP-17-1800_en.htm?locale=en.
Latvian version: http://europa.eu/rapid/press-release_IP-17-1800_lv.htm