Brussels has approved plans for the pan-European pension product (PEPP) that will scale-up individuals’ savings across Europe into a single pool.
PEPPs will also have the “huge advantage” of pooling all savings in a single personal pension plan.
According to official European Commission figures, only 27% of Europeans between 25 and 59 years of age have subscribed to a pension product.
Eugen Teodorovici, Minister for Finance of Romania, said: “Under the new rules, PEPPs will have the same standard features wherever they are sold. They will be offered by a broad range of providers, principally insurance companies, banks, occupational pension funds, investment firms and asset managers.”
The Minister said the personal pension market is currently fragmented due to a patchwork of rules that impede the development of a market at EU level. In some member states, the market is virtually inexistent.
One of the advantages of the PEPP is savers would be able to switch providers, both domestically and across borders, after a minimum of five years from taking out the contract or from the most recent switch. They could switch more frequently if the PEPP provider allows it. The fee for switching would be capped.
Savers would also be able to continue contributing to their PEPP if they move to another member state.
For providers, the PEPP will yield economies of scale as providers will be able to develop PEPPs in different member states and pool assets. PEPPs will have a broad reach across the EU using electronic distribution channels and the EU ‘passport’.
Pressure group Better Finance, which has criticised pension products for low returns, welcomed the PEPP agreement between the three top level EU authorities. The group said the PEPP would go a long way towards alleviating Europe’s pensions challenges provided it could ensure “pension adequacy through decent long-term returns” and a default option – known as a ‘basic PEPP’ – that is “really safe and really simple”.
Better Finance said it and Age Europe had made several proposals to improve the protection of EU pension savers and these had been taken on board. They included a cap of 1% per annum on fees charged on the basic PEPP.
But the group is still critical a “capital guarantee” in the basic PEPP.
“To mean anything, ‘capital’ must be equal to the amounts saved, i.e. before the deducting [of] all accumulated fees and charges directly or indirectly borne by pension savers, and, if possible, in real terms…”, Better Finance said.
Officials will now draft regulation for approval by the European Council and European Parliament to approve.
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