As the German organisation for all matters regarding occupational pensions (Arbeitsgemeinschaft für betriebliche Altersversorgung e.V. – aba), we have followed the process leading up the PEPP Proposal closely and have studied the Proposal itself and the accompanying documents carefully. From our perspective a lot of questions remain still open. They range from questions regarding the provision of annuities such as changing the provider in the decumulation phase, to questions around taxation (Will the consolidation of compartments have any tax implications?) as well as questions regarding consumer protection (Why is it only required to provide information on the national tax framework after signing the contract? If a national pension product is being transformed into a PEPP, how will the consumer be informed? Will they be able to exercise choice in this regard?). Because of these and many other questions, we think that the proposal for a Regulation is not thought through.
We doubt that the proposed PEPP Regulation will solve the problems described by the Commission. Many problems the Commission sees with existing personal pension products for example are unlikely to be remedied by a PEPP, because some of them are inherent to personal pension products. These problems include information asymmetries, weak negotiating power of the consumer, consumer aren’t always rational and choice overload.
From our perspective, occupational pensions follow a structural approach which addresses the problems. In Germany, the employer gives a pension promise to the employee, often within a framework agreed by the social partners, which means that the employee does not have to / cannot choose a vehicle, investment strategy etc. Often the employee can decide whether to make additional contributions, but this is a much less complex choice than buying a personal pension product. This set-up for pension provision has been developed over decades and works well. The recent reform to strengthen occupational pensions (Betriebsrentenstärkungsgesetz) has shown that this is acknowledged in Germany after 15 years of experience with personal pensions (Riester pension reform in 2001).
We also doubt that the PEPP will be a success, because of both supply and demand side issues if there is no generous tax framework attached. On the supply side, we wonder whether many providers will offer the PEPP – given that (after an initial three year period) they have to offer 27 compartments following different tax rules. Demand might be hampered because individuals do not have extra money to set aside for retirement (an issue the Impact Assessment did not look at) or they might want to buy a personal pension, but keep on postponing it.
One way to stimulate demand would be for the Member States to offer generous tax frameworks for the PEPP. However, if this was the case, people might move contributions they had previously made to existing second and third pillar schemes offering in contrast to PEPP more than long-term saving. It is likely that this would have a significant (negative) impact on existing schemes. It is not enough for the Commission to state that they do not intent for this to happen Before the Regulation is passed this needs to be carefully analysed.
Finally, we would like to stress that even though the foremost goal of the PEPP is to improve the workings of the Capital Markets Union, it in fact is a social policy initiative. The PEPP Regulation therefore not only addresses regulatory questions, but also implies fundamental tax and pension policy questions which are a key task of the Member States. The least is that EP Committee EMPL and the Social Affairs Ministers have their say and decide on the Regulation in addition to ECON and the Finance Ministers. Overall, we would like to stress again that social policy is and should remain a key task of the Member States.
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