How to tackle in one go both the funding gap of the existing pension provisions, which has become a challenge due to the ageing populations in Europe, and an increasing need for long-term investment to stimulate stronger and sustainable growth? By channelling retail investors’ long-term savings towards investment through a new product: the Pan-European Personal Pension Product (PEPP).
As part of its Capital Market Union initiative, the EU Commission has just released a proposal which aims at creating a new personal pension product that can be offered to EU citizens as an alternative to the products that are currently available at national level, including in jurisdictions where the offer of existing products for personal or occupational pensions is weak.
The proposed PEPP is expected to be simple, efficient and competitive. It will be based on a certain number of unified standards:
- Investors will be offered a choice of investment options, depending on their specific pension needs;
- Alternatively, Investors will also be offered a default investment option;
- Investors will be broadly informed and shall be provided a key information document describing the main features of the product;
- The PEPP can be offered across financial sectors by asset managers, investment firms, insurance undertakings or banks;
- All providers of PEPP regardless of their regulatory status will be subject to the same set of rules;
- The PEPP will be portable across Europe, meaning that subscribers can keep their PEPP if they change employers and countries during their working life.
The proposal that was released today contains a number of innovative and pragmatic approaches.
“This proposal is a major achievement after decades of consultations and preparatory works. The draft Regulation that has come out today fully reflects the spirit of the Capital Markets Union initiative in that it tries to link financial markets to the needs of the European citizens. The PEPP proposal could well be the starting point for a new approach to both investment and retirement. In a world of lacking retirement provisions there is an urgent need for citizens to be able to plan for their retirement individually. Occupational pensions schemes cannot satisfy these needs as workers no longer stay with one employer for their whole working lives but move between employers and – especially the young generation – between countries. The PEPP proposal provides EU citizens with a portable pensions product which they can subscribe for at the beginning of their career and which they can carry with them throughout their working lives, no matter how often they change employers or countries of residence. In addition to tackling a real concern today’s working population has, the proposed text also opens the way for some new approaches in terms of digitalisation and avoidance of over-regulation. In my view it is a big step into the right direction.”, said Silke Bernard, Partner, Investment Management Group at Linklaters.
Even though the final form and shape of the PEPP remains to be confirmed, the asset management industry has already identified this new product as one that has the potential to create significant opportunities.
This article was first published by Linklaters