On 20th June 2019 the European Parliament and Council adopted the Regulation on the Pan-European Personal Pension Product (PEPP), which was published in the Official Journal of the European Union on 25 July 2019. This project is the culmination of a long reflection motivated by the need to rescue the growing deficits of national public schemes. In doing so, it is the first truly European financial product, offering new distribution opportunities for insurance and financial intermediaries. According to the Commission, the first PEPPs are expected to be marketed in mid to late 2021.
A VOLUNTARY PERSONAL PENSION SCHEME
2 trillion euros: this figure represents the estimated deficit of national pension systems in Europe by 2057, to maintain pension amounts equivalent to those currently being paid. It is clear that the ageing of the population, rising unemployment and longer life expectancy are contributing to the weakening of current national pension systems. Average replacement rates, (i.e. the percentage of working income received by European pensioners) vary between 40 and 90% depending on the country (70% in France). It is expected to fall by at least 10% over the next 40 years. It is with a view to offering working people a means of building up a supplementary pension that the regulation on the Pan-European Personal Pension Product (PEPP) was published last summer in the Official Journal of the European Union, establishing a regulatory framework for this financial product common to all Member States.
AN UNIQUE AND STANDARDISED PENSION PRODUCT
The “Pan-European Personal Pension Product” (PEPP) as proposed by Brussels is designed to be simple, standardised and secure. The PEPP is a savings product that complements national pension systems, it does not replace them. It takes the form of a standardised financial product with identical characteristics in all Member States. It offers a so-called accumulation period by means of regular payments and then, once the retirement age is reached, an annuity or a capital withdrawal at the saver’s choice.
By default, the PEPP will offer a simple investment option providing a guarantee on the capital invested. However, the holder will be able to diversify his investments towards more dynamic vehicles. It will be open to all types of issuers, banks, insurance companies or asset management companies on the basis of an authorisation issued directly by EIOPA, the European supervisory authority for the sector. This single European label gives EIOPA new powers of authorization previously reserved solely for national regulators.
“With the PEPP, we estimate that the European market for individual retirement savings products could triple by 2030. This represents around €700 billion today and €2.1 billion in 2030”.
It is in this context that on 2 December 2019, EIOPA launched a public consultation on the main aspects of the scheme, allowing stakeholders to comment until 2 March 2020. Indeed, EIOPA has until 15 August 2020 to submit to the European Commission draft technical standards for the content, delivery and revision of the EPPP Key Information Document.
The retirement savings market is fragmented within the EU, and even almost non-existent in some Member States. Indeed, according to the Commission, only 27% of Europeans aged between 25 and 59 have taken out retirement savings.
THE TAX SYSTEM IN QUESTION
However, it will still have to overcome a major obstacle: in the absence of tax harmonization between the 28 Member States, the treatment of payments made or pensions paid could diverge from one Member State to another and greatly reduce the interest of the PEPP.
The Commission, aware of the pitfall but without any real power on this sovereign subject, has therefore encouraged the Member States to give the PEPP the same tax treatment as its national products and to apply its own regulatory provisions on individual retirement savings.
 Keynote speech by Commission Vice-President Valdis Dombrovskis at the Baltic and Nordic Conference, 23 April 2019:” Impact of PEPP on EU Capital Markets and Sustainable Pensions Income “.