On 29 June 2017 Valdis Dombrovskis, the European Commission’s Vice-President for the Euro, presented a proposal for Pan-European Personal Pension Products (PEPPs). The proposal aims to set common standards for pension products by proposing a framework for personal pensions that can coexist with current national personal pensions. The main innovation is that PEPPs will be authorized to be sold across borders and that pension beneficiaries will also be able to move from one EU countries to another. AGE welcomes this proposal as it will mean more choice and better transparency to savers. However AGE warns about the continuing importance of pension adequacy in statutory (‘first-pillar’) pension systems.
The rationale for the product presented by Mr Domobrovskis is to encourage further personal savings for retirement, as demographic change is putting pressure on statutory pension systems and future challenges to pension adequacy are high. The proposal corresponds to the roadmap of the European Commission promoting long-term investments for the European economy. The proposal also aims to bring more competition in European markets where personal pension offers are few or inexistent.
PEPPs would allow pension providers to build large pension funds as they can benefit from a customer base in many EU Member States and use economies of scale. The Commission proposes that PEPPs would offer no more than five personal investment options that cater to different degrees of risk-adversity, and identify a ‘safe’ default option, with low financial risks attached to the product. The Commission encourages Member States to put PEPPs on par with national personal pension products where these are encouraged by tax incentives.
The providers who wish to offer a Pan-European Personal Pension Product have to provide standardized information to future customers and have to be authorized by the European Insurance and Occupational Pensions Authority (EIOPA) to operate. Pension providers have to allow savers to switch providers at a capped cost every five years, further creating competition in the market.
AGE highly welcomes the proposal for Pan-European Personal Pensions, as there is indeed a lack of opportunities to invest and a lack of transparent information about the real returns and hidden costs in personal pension products. This comes notwithstanding AGE’s position that EU countries should continue to build socially fair statutory pension systems that also allow workers with interrupted careers, caring responsibilities, disabilities, low incomes and non-standard forms of employment to enjoy their retirement with an income that enables them to live in dignity.