EC proposes legislation for pan-European individual pensions
In a long overdue move, the European Commission in June 2017 unveiled a proposal for a pan-European personal pensions product (PEPP). PEPPs are designed to complement – not replace or harmonize – existing state-based occupational and national personal pensions throughout the European Union.
The PEPP forms part of the Commission’s plan to build a Capital Markets Union (CMU), wherein the Commission believes the new pension product will help to channel more savings to long-term investments in the E.U. According to a study, the PEPP has the potential to double the growth of the personal pension market to €2.1trn by 2030. Currently, the European market for personal pensions is regarded as being fragmented and uneven, with offerings concentrated in a few member states and nearly non-existent in others.
A wide range of providers will be able to offer a PEPP, including insurance companies, banks, occupational pension funds, and asset managers.
The Commission’s proposal sets out standards for core product features such as transparency requirements, investment rules, switching, and portability. Once authorized by the European Insurance and Occupational Pensions Authority (EIOPA), a PEPP can thereafter be distributed throughout the E.U., with portability between member states. Consumers will be able to choose between several investment strategies and member states will set the conditions for the saving phase and pay-out of capital, as well as tax treatment.
The current proposal consists in draft regulation accompanied by a separate requirement that E.U. member states grant the same tax treatment to PEPPs as they do to similar existing national products, even if the new product does not fully match the national criteria for tax relief.
But don’t bring out your checkbook just yet: the Commission’s draft regulation will next be discussed by the European Parliament and the Council of Ministers; and actual implementation is entirely dependent on the appetite of private sector players for yet another type of product in the individual savings arena. That being said, internationally mobile employees stand to benefit from such a solution which is likely to be offered (at the very least) by existing providers of individual expatriate products.