Personal pension saving: EU alternative to offer more flexibility 

A personal pension can prove a useful additional source of income when retirement comes. Photo by Alex Beaz on Unsplash 

A simple pan-European personal pension product will allow savers across the EU to keep putting money into the same scheme even if they move to another EU country.

On 3 September Parliament’s economic affairs committee voted in favour of rules introducing personal pension products with standard features all across the EU. They will compete with national products in the field and thus provide more choice to people wishing to save for retirement.

Dutch ALDE member Sophie in ’t Veld, who drafted Parliament’s position, said the product’s main appeal will be the European oversight: “It will be a product people can trust. A personal predictable and cost-effective retirement product, regardless of one’s location in the EU. The PEPP also has a clear set of information to be handed out to the saver, as well as mandatory advice to make sure the saver knows what he's buying and what he may expect.”

What are personal pension products?

Personal pension products give people the option to set aside retirement money. They are voluntary and complementary to whatever you are entitled to receive from the public pension system and from contributions made by your employer(s).

While you are not obliged to have a personal pension, it can provide a useful additional source of income when retirement comes. Money that you put in is invested in financial instruments. There are also tax incentives related to this type of saving.

EU alternative

There are many personal pension products on the market in EU countries, but they vary significantly. The pan-European personal pension product (PEPP) aims to provide a simple alternative with standard features and transparent costs that can be sold across borders.

Savers would benefit from increased portability, as they can work in another member state and still save for retirement with the same provider. Meanwhile PEPP providers can sell their products to a larger market and achieve economies of scale.

A study quoted by the European Commission says that the assets under management in the personal pension market could rise threefold to €2.1 trillion by 2030 as a result of the legislation.

Savers will be able to choose between different investment options, thus indicating the level of risk they are comfortable with. Those who choose the default option will be guaranteed to recover all the capital invested. In addition, savers will be able to switch to other providers of such products at a capped cost.

Tax treatment

Tax incentives may be crucial to whether people take up personal pension products. In a separate recommendation to the Council, the economic affairs committee argues that PEPPs should benefit from preferential tax treatment by countries to attract savers.

Options include each country giving PEPPs the same preferential tax treatment as other national products, or all EU countries agreeing together on specific tax relief. As with all issues related to taxation, agreeing a common approach on incentives would require unanimity among member states.

Next steps

MEPs will now start negotiations with the Council and the Commission in order to find an agreement on the rules concerning pan-European personal pension products.