Pan-European Personal Pension Product

27-10-2017

This note seeks to provide an initial analysis of the strengths and weaknesses of the European Commission's impact assessment (IA) accompanying the above proposal, adopted on 29 June 2017 and referred to Parliament’s Committee on Economic and Monetary Affairs (ECON). Pension systems across the EU vary considerably. While state-based public pensions constitute the most important part of retirement income, they may be complemented by occupational pensions and/or (national) personal pensions (private pension savings by households) (IA, pp. 4-5). The IA observes that although demographic change and limited public budgets increase the pressure on public pension systems and their adequacy, currently only 27 % of the EU population between 25 and 59 years old, representing 13 % of the total EU population, invest in personal pensions (IA, p. 11, Annex 6, pp. 97-98). Moreover, the 2015 Action Plan on a Capital Markets Union found the single market for personal pension products to be highly fragmented, due to divergent national and European rules. It concluded that this fragmentation prevented providers from developing innovative and competitive products and savers from receiving good quality, flexible and easily portable personal pensions (IA, p. 4, 9). The availability of personal pension products varies widely from Member State to Member State, and the existing offers differ considerably as regards both their accumulation (saving) and decumulation (pay-out) phases; this makes their portability difficult and leads to a generally low take-up. Against this backdrop, as announced in its mid-term review of the Capital Markets Union Action Plan, the Commission came forward in June 2017 with a legislative proposal to create a voluntary pan-European personal pension product (PEPP). The aim is to complement the existing national personal pensions and to encourage private capital investments in retirement savings on an EU scale. Given the relevance of tax incentives for personal pension products, the proposal is accompanied by a recommendation on tax treatment of such products by Member States, which is also covered by the IA under examination.

This note seeks to provide an initial analysis of the strengths and weaknesses of the European Commission's impact assessment (IA) accompanying the above proposal, adopted on 29 June 2017 and referred to Parliament’s Committee on Economic and Monetary Affairs (ECON). Pension systems across the EU vary considerably. While state-based public pensions constitute the most important part of retirement income, they may be complemented by occupational pensions and/or (national) personal pensions (private pension savings by households) (IA, pp. 4-5). The IA observes that although demographic change and limited public budgets increase the pressure on public pension systems and their adequacy, currently only 27 % of the EU population between 25 and 59 years old, representing 13 % of the total EU population, invest in personal pensions (IA, p. 11, Annex 6, pp. 97-98). Moreover, the 2015 Action Plan on a Capital Markets Union found the single market for personal pension products to be highly fragmented, due to divergent national and European rules. It concluded that this fragmentation prevented providers from developing innovative and competitive products and savers from receiving good quality, flexible and easily portable personal pensions (IA, p. 4, 9). The availability of personal pension products varies widely from Member State to Member State, and the existing offers differ considerably as regards both their accumulation (saving) and decumulation (pay-out) phases; this makes their portability difficult and leads to a generally low take-up. Against this backdrop, as announced in its mid-term review of the Capital Markets Union Action Plan, the Commission came forward in June 2017 with a legislative proposal to create a voluntary pan-European personal pension product (PEPP). The aim is to complement the existing national personal pensions and to encourage private capital investments in retirement savings on an EU scale. Given the relevance of tax incentives for personal pension products, the proposal is accompanied by a recommendation on tax treatment of such products by Member States, which is also covered by the IA under examination.