On 13 February 2019, the EU moved a step closer to a genuine European personal pension market with a political agreement in the European Parliament and Council on a pan-European personal pension product (PEPP). The new rules will mean that European consumers have more choice when saving for retirement. The PEPP will also help the EU address the pension gap, caused by rapidly ageing populations across Europe.  It will be a voluntary retirement savings scheme, which will complement existing public and occupational pension systems, as well as national personal pension schemes. It is not an alternative to public or occupational pension schemes. The PEPP is expected to be formally adopted in the coming months.

Current challenges

Over the next 40 years, the share of the EU population in retirement age compared to those of working age is expected to double. Consequently, state-based and occupational pensions will be under increasing pressure and people will need to save more to supplement their retirement income.

At present, only 27% of Europeans between 25 and 59 years old have signed up for a personal pension product. The supply of these products in the EU is uneven and varies greatly from one Member State to another. This is largely due to the diversity of national rules, which impedes portability and the development of a large and competitive EU internal market for personal pensions.

Benefits for consumers

For consumers, the PEPP will mean more high-quality personal pension products, at lower costs. As PEPP will be offered by a wide range of financial providers, increased competition will mean consumers have more choice. They will also benefit from stronger consumer protection rules. There will be a simple and affordable default investment option (the ‘Basic PEPP’), with capped costs.

Fees and costs will be fully transparent for all investment options. A key information document (PEPP KID) will be supplied before purchase and a standardised pension benefits statement (PEPP PBS) will be offered over the whole product’s lifetime.

In addition, PEPPs will allow consumers to switch providers periodically, every five years, at capped costs. This will stimulate competition on the market, which is also expected to translate into more choice and lower fees. Furthermore, consumers will also be able to change investment option (also every five years). Providers will have to offer consumers comprehensive advice for all investment options, including before retirement. This way, consumers will be able to identify the type of pay-outs (i.e. annuities, drawdowns, lump sum or a combination of these) which best fits their needs.

Another major benefit for consumers is that PEPPs will be available on a pan-European basis. This means that consumers will be able to continue saving in the same pension product, even if they move to another EU country. Standardised core product features and flexibility will make it possible to cater for national differences, so that consumers can take advantage of national incentives that might be offered. As the percentage of EU citizens living in another Member State is expected to increase over the coming years, portability is a significant advantage.

Finally, it will be possible to purchase and distribute the PEPP online, which will make it more attractive for young Europeans.

Benefits for providers

PEPP providers will benefit from a real single market for the PEPP and from facilitated cross-border distribution. The proposed regulation offers a huge market potential for personal pensions. According to a 2017 study by an independent contractor, the personal pensions market could grow by 2030 from €0.7 trillion assets under management today to €2.1 trillion with the PEPP (depending on the level of tax incentives), compared to only €1.4 trillion without the PEPP.

Insurers, who represent the bulk of the personal pension market today, will be able to expand their activities from mostly domestic distribution to the EU as a whole, reaping the benefits of scale and asset pooling. New market entrants will benefit from the standardisation of the core PEPP features, as well as the possibility of selling PEPPs online and distributing them in several Member States with a single product registration.

The PEPP is part of the 2015 action plan to strengthen the capital markets union, which is the Commission's project to create a single market for capital in the EU.

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