The political importance of the proposed Pan-European Personal Pension (PEPP) is “immense”, Europe’s trade body for asset managers is telling the European Commission.
Brussels is expected to launch a legislative proposal on a framework for a Pan-European Personal Pension product (PEPP) at the end of June, said the European Fund and Asset Management Association (Efama).
Yesterday, Efama issued a short briefing document outlining its vision for how young Europeans will benefit from the PEPP.
The briefing showed that households held €7.6 trillion in bank accounts at end 2016. This figure represents 41% of households’ financial wealth.
Efama said that at a time when the average replacement rate from public pensions in the EU28 is expected to fall to 36% by 2060, EU citizens should be encouraged to start saving more and earlier, and to re-allocate part of their savings towards more market-based instruments.
The current fragmentation of national markets in the personal pension sphere means there is less choice and competition than it should, Efama said.
Efama views the PEPP as the solution to make personal pensions more attractive and contribute to the success of Europe’s Capital Markets Union.
The PEPP should be a highly standardised product that can be sold across Member States with an EU product passport. However, the PEPP framework should give Member States the freedom to introduce country-specific rules in a limited number of areas which are central to the organisation of their pension systems, such as the beneficial tax treatment granted to pension products, the determination of the retirement age and the features of eligible pay-out options.
Finally, the framework should give an adequate degree of flexibility for potential PEPP providers, such as whether they wanted to offer life-cycle investment strategies, or strategies with minimum return guarantees as a default option.
Peter De Proft, director general, Efama said the PEPP could be the solution to the problems which hinder the proper functioning market for personal pensions in Europe, in particular the high level of cost, the limited product choice and the lack of portability between Member States.
“The political importance of the project is immense. The PEPP can be one of the most tangible initiatives that the Juncker Commission can take to reconcile the young generation of European savers with the European project,” de Proft said.
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