The Pan-European Pension Product (PEPP) or Pan-European Personal Pension Product is a proposed pension which will be available to residents of the European Union. The PEPP is designed to give the 240 million savers in the EU a better choice in the fragmented and uneven European market, where options are nearly non-existent in some member states. PEPPs are regulated by the Regulation 2019/1238.European Union, "Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product (PEPP)", Official Journal of the European Union, 25 July 2019. Retrieved 16 February 2020. This regulation lays the legal foundation for a single European market for personal pensions. The PEPP will be complementary to existing state, occupational and private pension systems on national level. After endorsement by the European Parliament and official adoption by the European Council the PEPP regulation was published in July 2019 and will enter into application in August 2020. The first PEPPs are expected to be offered in late 2021.European Commission, "Capital Markets Union: Pan-European Personal Pension Product (PEPP)", ‘’European Commission’’, 4 April 2019. Retrieved 14 February 2020.
Valdis Dombrovskis, a vice-president of the European Commission responsible for financial services, said "It has enormous potential as it will offer savers across the EU more choice when putting money aside for retirement," and "It will drive competition by allowing more providers to offer this product outside their national markets. It will work like a quality label and I am confident that the PEPP will also foster long-term investment in capital markets."
Jyrki Katainen, vice-president responsible for Jobs, Growth, Investment and Competitiveness, added: "The agreement achieved by the European Parliament and the Council on PEPP is a major milestone on the road to addressing pension gaps and demographic challenges and a major achievement in completing Capital Markets Union. It will benefit consumers and providers with a strong framework for personal pensions through a new product with strong consumer protection and enhanced cross-border competition."European Union, "Factsteet: A pan-european personal pension product, ‘’European Commission’’, 13 February 2019. Retrieved 13 February 2020.
Gabriel Bernardino, Chairman of the European Insurance and Occupational Pensions Authority (EIOPA), said: "The current macro-economic environment with persistent low and negative yields requires the rethinking of long-term retirement savings solutions. The implementation of the PEPP Regulation is an opportunity to build an appropriate regulatory basis for the design and monitoring of innovative and cost‑effective products that could enable European savers to reap the benefits of sustainable growth."EIOPA, "EIOPA publicly consults on its approaches for regulating key aspects of the Pan-European Personal Pension Product (PEPP)" , ‘’EIOPA’’, 2 December 2019. Retrieved 14 February 2020.
The European Union is committed to fighting old-age poverty. Currently, only 27% of Europeans between 25 and 59 years old have enrolled themselves in a pension product.European Commission, "Capital Markets Union: Pan-European Personal Pension Product (PEPP)", ‘’European Commission’’, 4 April 2019. Retrieved 13 February 2020. With the PEPP the EU is responding to changing demographics due to the aging of the population, the modern forms of labour, and embracing the opportunities of digitalisation. This PEPP is designed to give savers more choice and provide them with more competitive products, while enjoying strong consumer protection. Moreover, a more developed market for personal pensions in the EU will channel more savings into long-term investments and thus contribute significantly to develop a Capital Markets Union (CMU). According to a study by Ernst & Young to the European commission personal pension assets under management in the EU28 are expected to grow from EUR 0.7 trillion in 2017 to EUR 1.4 trillion without PEPP and EUR 2.1 trillion with PEPP by 2030.EY, "Study on the feasibility of a European Personal Pension Framework", ‘’European Commission’’, June 2017. Retrieved 12 February 2020.
The PEPP offers additional incentives for people to save for their pension, alongside the occupational and state-based pensions available today. PEPPs will be available to all residents in one EU member state no matter if they are employed, unemployed, self-employed or studying. PEPPs could be particularly attractive to both mobile citizens and self-employed individuals who are not participating in state-based or occupational pension provisions.
A PEPP can be offered by all providers that fulfil certain criteria provided by the PEPP regulation, including insurance companies, banks, asset managers, certain investment firms and certain occupational pension funds (Institutions for Occupational Retirement Provision Directive 2016). A PEPP can be sold by investment firms authorised to provide investment advice, or any insurance intermediaries. To sell a PEPP, it is not mandatory for providers to be the designers of the product. It can be expected that traditional players such as insurance companies and asset managers will be among the first players to offer a PEPP. But PEPP could also be an opportunity for new FinTech players to enter the market with innovative solutions competing with more traditional providers such as insurance companies. The European Insurance and Occupational Pensions Authority (EIOPA) will maintain a central register in which it will register all PEPPs, this register will be made publicly available in electronic format.
Content The core elements of the PEPP are:European Commission, "Capital Markets Union: Pan-European Personal Pension Product (PEPP)", ‘’European Commission’’, 4 April 2019. Retrieved 11 February 2020European Commission, "Factsheet: A pan-European personal pension product", ‘’European Commission’’, 13 February 2019. Retrieved 11 February 2020.
Digital disclosure and distribution: PEPP will be a modern product that can be distributed and purchased online, which will make it more attractive for young Europeans. The PEPP regulation explicitly allows either fully automated or semi-automated advice, this can help to reduce barriers to entry, create new cross-border opportunities, and ultimately reduce the costs of distributing the PEPP.
Full transparency: Fees and costs will be transparent, disclosed via a simple Key Information Document (KID) supplied before the purchase, as well as a standardised pension benefits statement during the product lifetime.
Full mandatory advice: Consumers will also benefit from full mandatory advice (with a suitability test for all PEPP savers), to enable them to make an informed decision before purchasing a product. They will also benefit from personalised advice before retirement in order to choose the most suitable form of out-payments to their needs.
Cross-border portability: Providers will be able to offer PEPPs on a pan-European basis, allowing savers to continue saving in the same product, when they change residence across borders in the EU. In case portability is not available, consumers can switch providers free of charge or can continue to contribute to the PEPP of the previous country residence. However, PEPP can be offered only on the EU territory.
A simple and affordable default option: All PEPP providers have to offer a simple and affordable default option called the "Basic PEPP". For the Basic PEPP costs and fees capped at 1 % of the accumulated capital per year. The Basic PEPP will also offer capital protection to ensure that savers recoup the capital invested (without taking into account the impact of fees and inflation).
A right to switch: PEPP savers will be able to switch provider or choose a different investment option after a minimum of five years from the conclusion of the contract and, in case of subsequent switches, after five years from the most recent switching. The PEPP provider may allow PEPP savers to switch investment options and providers more frequently.
Flexible payout: PEPP providers can offer PEPP savers one or several types of out-payments (annuities, lump sum, regular drawdown payments, "Tontine"-style drawdown payments or a combination of these). Savers will be able to choose the form of out-payments for the decumulation phase when opening an account. If available, savers will be allowed to modify the form of out-payments. Member States may incentivise different forms of out-payments.
Sustainable investment: Providers are encouraged but not forced to take into account environmental, social and governance (ESG) factors in their investment decisions. Given the expected market size and the long-term nature of pension products, PEPP could contribute significantly to the EU sustainability agenda in the financial sector.
The PEPP saver can choose between a maximum of six investment options. All providers have to offer a "Basic PEPP". The Basic PEPP is a simple, affordable and safe default option providing a level playing field among providers and full transparency for savers. For the Basic PEPP costs and fees capped at 1 % of the accumulated capital per year. This includes all costs for administration, asset management and distribution. Any costs linked to additional features (e.g. payment in case of death) or a capital guarantee that are not required shall not be included in the cost cap. The basic PEPP aims at preserving the savers capital at retirement and cover the contributions during the accumulation phase after deduction of all fees and charges. Depending on the type of capital protection there will be two types of basic PEPP. For the Basic PEPP with a guarantee (type 1), providers will have a legal obligation to ensure that PEPP savers recoup at least the capital invested. The Basic PEPP with other risk mitigation techniques (type 2) shall be consistent with the objective to allow the PEPP saver to recoup the capital, but without any legal obligation to recoup the capital.EIOPA, "Consultation Paper on the proposed approaches and considerations for EIOPA’s Technical Advice, Implementing and Regulatory Technical Standards under Regulation (EU) 2019/1238 on a Pan-European Personal Pension Product (PEPP)" , ‘’EIOPA’’, 29 November 2019. Retrieved 7 February 2020.
The PEPP does not cover tax incentives. It is up to the member states to offer any tax incentives or not. In order to create a level playing field for PEPP and existing national pension products the European commission encourages the member state to grant PEPP savers the same tax treatment as similar existing national personal pension products.European Commission, "COMMISSION RECOMMENDATION on the tax treatment of personal pension products, including the pan-European Personal Pension Product", ‘’European Commission’’, 29. June 2017. Retrieved 11 February 2020.
Regulation PEPP providers will be supervised by national authorities. The distribution regime of the PEPP follows a sectorial approach. Insurance companies and insurance intermediaries that distribute a PEPP will be subject to the Insurance Distribution Directive (IDD), while investment firms and other PEPP providers and distributors will have to apply the provisions of the Markets in Financial Instruments Directive (MiFID II).