FAQs to better understand the new Pan-European Pension Personal Product
What is a pan-European personal pension product (PEPP)?
The PEPP is a voluntary personal pension scheme that will offer consumers a new pan-European option to save for retirement. This new type of product is designed to give savers more choice when they are putting money aside for old age and provide them with more competitive products. It could be offered by a broad range of financial companies such as insurance companies, banks, occupational pension funds, certain investment firms and asset managers.
The Commission’s proposal will lay down the foundations for a pan-European Personal Pension market, ensuring standardisation of the core product features, such as transparency requirements, investment rules, switching and portability. It will ensure sufficient consumer protection on the essential features of the product, while at the same time being flexible enough to enable different providers to tailor products to suit their business model. This initiative is complementary to existing pension plans, whether state-based, occupational or personal pensions and it will not replace or substitute them.
Why is the Commission proposing a PEPP framework?
Europe is facing an unprecedented demographic challenge that will increase pressure on public finances. Over the next 50 years, the share of the population in retirement-age versus those in working-age is forecast to double (going from four to one,to two to one, meaning two people in working age to one pensioner). This calls for reforms in national pension systems, which some EU Member States have already begun. Part of the answer lies in occupational and personal pension schemes complementing state-based pensions.
One issue, however, is that the European market for personal pensions is fragmented and uneven. The offers are concentrated in a few 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 the development of a large and competitive EU-level market for personal pensions. The PEPP regime would provide the building blocks for the creation of a voluntary single personal pension product that can be marketed by providers on a pan-European scale. Pensions providers have signalled their interest duruing the Commission’s public consultation on pensions. The PEPP is expected to lead to a broader offer of personal pension products in the EU, with providers able to pool assets and diversify their investments across Member States, reducing the fragmentation of capital markets in the EU.
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