Explanatory Memorandum to COM(2017)343 - Pan-European Personal Pension Product (PEPP) - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2017)343 - Pan-European Personal Pension Product (PEPP). |
|---|---|
| source | COM(2017)343  |
| date | 29-06-2017 |
1. CONTEXTOFTHEPROPOSAL
1.1. Reasons for and objectives of the proposal
Across the European Union (EU), individuals who wish to supplement their pensions are saving for retirement in many different ways, for example by investing in real estate, life insurance and other long-term investment products. Personal pension products are another option. However, personal pension markets are unequally developed and personal pension products are unequally affordable across the European Union (EU). People who wish to save more for retirement need a greater choice of suitable personal pension products that rely on capital markets-based investments. An additional public policy challenge is the need to ensure the long-term sufficiency of retirement income from a combination of state, occupational and personal pensions.
Market fragmentation prevents personal pension providers from maximising risk diversification, innovation and economies of scale. This reduces choice and attractiveness and leads to increased costs for pension savers. It also contributes to a lack of liquidity and depth in the capital markets compared with other jurisdictions such as the United States of America, where pension funds play a bigger role as institutional investors. Moreover, some existing personal pension products have insufficient features1 and their availability and cross-border portability is limited, with hardly any cross-border activity by suppliers or savers.
An EU initiative on personal pensions could therefore complement the current divergent rules at EU and national level by adding a pan-European framework for pension, for individuals who wish to use this additional saving option. This framework will not replace or harmonise existing national personal pension schemes. It will offer individuals a new voluntary framework for saving by ensuring sufficient consumer protection with regard to the essential features of the product. At the same time, the framework will be flexible enough to enable different providers to tailor products to suit their business model. It will encourage providers to invest in a sustainable manner in the real economy over the long term, particularly in infrastructure projects and corporates, thus matching the long-term liabilities under the PEPP.
Overall, the proposal will create a quality label for EU personal pension products and increase trust among consumers. It will lead to consumers having greater choice between providers and ensure a level playing field for providers. The proposal may also contribute to the creation of a single market for personal pensions and encourage competition between providers to the benefit of consumers.
The Commission’s Action Plan on Capital Markets Union of September 20152 stated that, ‘an “opt in” European Personal Pension could provide a regulatory template, based on an appropriate level of consumer protection, that pension providers could elect to use when offering products across the EU. A larger, “third pillar” European pension market would also support the supply of funds for institutional investors and investment into the real economy’. In the action plan, the Commission also announced that it will ‘assess the case for a policy framework to establish a successful European market for simple, efficient and competitive personal pensions, and determine whether EU legislation is required to underpin this market’.
This concerns for instance distribution, investment policy, provider switching, cross-border provision,
or portability. For instance, some existing personal pension products do not allow savers to switch
providers.
COM(2015) 468 final, p.19.
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The European Parliament, in its Resolution of 19 January 20163, expressed concern about the lack of available and attractive risk-appropriate (long-term) investments and cost-efficient and suitable savings products for consumers. While reiterating the need for diversity in investor and consumer choices, the European Parliament stressed that ‘an environment must be fostered that stimulates financial product innovation, creating more diversity and benefits for the real economy and providing enhanced incentives for investments, and that may also contribute to the delivery of adequate, safe and sustainable pensions, such as, for example, the development of a pan-European Pension Product (PEPP), with a simple transparent design’.
In June 2016, the European Council called for ‘swift and determined progress to ensure easier access to finance for business and to support investment in the real economy by moving forward with the Capital Markets Union agenda4.’
In September 2016, in its Communication Capital Markets Union — Accelerating Reform5, in light of the strong support expressed by the European Parliament, Council and stakeholders for the Capital Markets Union action plan, that it will ‘consider proposals for a simple, efficient and competitive EU personal pension product’.
Subsequently, in its Communication Mid-term Review of the Capital Markets Union Action
Plan, the Commission announced ‘a legislative proposal on a pan-European Personal Pension
cost-efficient and transparent market in affordable and voluntary personal pension savings
that can be managed on a pan-European scale. It will meet the needs of people wishing to
enhance the adequacy of their retirement savings, address the demographical challenge,
personal pensions by offering good opportunities for long-term investment of pension savings6’.
This proposal for a PEPP framework comprises a complementary voluntary scheme alongside national regimes, enabling providers to create personal pension products on a pan-European scale. It aims to channel more household savings away from traditional instruments, such as savings deposits, towards the capital markets.
The proposal aims to ensure that consumers are fully aware of the key features of the product. Regarding investment policy, consumers will have a choice between a safe default investment option and alternative options with different risk-return profiles. Consumers will benefit from EU-wide portability, full transparency of the costs of the PEPP and the ability to switch providers (with switching costs capped).
From the point of view of providers, the proposal intends to enable a broad range of them to offer the PEPP (banks, insurers, asset managers, occupational pension funds, investment firms) and to ensure a level playing field. The PEPP could be provided online, including advice, and would not require a network of branches, allowing easier market access. Passporting rules would help providers enter new national markets. Standardising the key features should also reduce providers’ costs and help them pool contributions from different national markets in order to channel assets into EU-wide investments.
European Parliament, Resolution of 19 January 2016 on stocktaking and challenges of the EU Financial Services Regulation: impact and the way forward towards a more efficient and effective EU framework for Financial Regulation and a Capital Markets Union, 2015/2106(INI), point 20. European Council conclusions of 28 June 2016, EUCO 26/16, point 11. COM(2016) 601 final, p. 4. COM(2017) 292 final, p. 6.
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The flexibility around other features, such as the conditions for accumulating pension contributions, is intended to enable consumers to benefit from national tax incentives available in their Member State of residence, provided that the providers adapt the PEPPs to the national criteria for tax incentives.
In order to encourage Member States to grant tax relief on the PEPP, the Commission has adopted a Recommendation on the tax treatment of personal pension products, including the pan-European Personal Pension Product, al ongside thi s proposal.
1.2. Consistency with existing policy provisions in the policy area
In the area of pensions, the EU has adopted the following major initiatives in recent years:
• 1998 Directive on safeguarding the supplementary pension rights of employed and self-employed persons moving within the Community ;
• 2014 Directive on the portability of supplementary pension rights , aimed at promoting worker mobility by reducing the obstacles created by certain rules on occupational pensions;
• 2016 Directive on institutions for occupational retirement provision (‘IORP2’)9, which
strengthens governance, information disclosure and cross-border requirements for occupational pensi on fu nd s.
‘Track and trace your pension in Europe project’10, proposing the creation of a European
tracking service to help people track information about their pension entitlements across Member States, and the RESAVER pr oje ct11 .
The proposal for a PEPP framework does not affect the three directives mentioned above, as they target occupational pensions. With regard to non - legislati v e initiatives, the PEPP framework could be integrated into future projects.
1.3. Consistency with other EU policies
The proposal aims to increase the take-up of personal pensions in the EU. It is consistent with the EU policy of encouraging complementary retirem ent savi ngs in order to achieve pension adequacy, as set out in the Commission White Paper on pensions in 201212. In line with this, the 2015 Pension Adequacy Report concluded that increased entitlements from supplementary (that is, occupational and personal) retirement savings could, alongside other measures,
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employed and self-employed persons moving within the Community, OJ L 209, 25.7.1998, p. 46.
requirements for enhancing worker mobility between Member States by improving the acquisition and
preservation of supplementary pension rights, OJ L 128, 30.4.2014, p. 1.
activities and supervision of institutions for occupational retirement provision (IORPs), OJ L 354,
23.12.2016, p. 37.
ttype.eu/
www.resaver.eu/">www.resaver.eu/. The RESAVER project is a sector-specific occupational pension fund designed
to make it easier for research staff to keep their pension arrangements as they move between research
institutions in different EU countries. It also includes a personal pension option.
White paper An Agenda for Adequate, Safe and Sustainable Pensions, COM(2012) 55 final,
16 February 2012.
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mitigate the impact of lower pensions from public schemes in some Member States. The 2017 Annual Growth Survey reported that broad coverage (i.e. wide availability and increased uptake) of supplementary pensions could play a key role in retirement income provision, in particular where public pensions may be inadequate, and should be promoted by appropriate means, depending on the national context.
The proposal is in line with EU policy on strengthening consumer protection, in particular by developing a low-risk default investment option, requiring full transparency to PEPP savers, specifically on costs, and allowing savers to switch provider with a cap on switching costs.
2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY
2.1. Legal basis
The legal basis for this proposal is Article 114 of the Treaty on the Functioning of the European Union (TFEU), which allows the adoption of measures for the approximation of national provisions having as their object the establishment and functioning of the internal market.
Currently, the functioning of the internal market for personal pensions is impeded by the high degree of fragmentation between national markets and the limited degree of portability of personal pension products. This can make it difficult for individuals to make use of their basic freedoms. For example, they may be prevented from taking up a job or retiring in another Member State. In addition, the possibility for providers to use the freedom of establishment and the freedom to provide services is hampered by the lack of standardisation of existing personal pension products.
The proposal will create a largely standardised pan-European product, available in all Member States, that will empower consumers to make full use of the internal market by enabling them to transfer their pension rights abroad and offering them a greater choice of providers, including in other EU countries. The proposal harmonises the core features of the PEPP: authorisation, distribution (including information provision and advice), investment policy, switching provider and cross-border provision and portability. The proposal is complemented by the Recommendation on the tax treatment of personal pension products, including the pan-European Personal Pension Product13. This is aimed at avoiding that in certain Member States PEPPs fall outside the scope of national tax incentives, if the core product features do not match all national criteria for tax relief.
2.2. Subsidiarity (for non-exclusive competence)
Under Article 4 TFEU, EU action for completing the internal market must be appraised in the light of the subsidiarity principle set out in Article 5(3) of the Treaty on European Union (TEU). It must be assessed whether the objectives of the proposal could not be achieved by the Member States in the framework of their national legal systems (necessity test) and, by reason of their scale and effects, are better achieved at EU level (effectiveness test).
First, regarding the necessity test, the uncoordinated efforts of Member States, whether at central, regional or local level, cannot remedy the legal fragmentation in product regulation, which results in extra compliance costs for providers and discourages cross-border activity. For example, EU legislation on distribution requirements for financial products (such as the
13 C(2017)4393
Insurance Distribution Directive, the Markets in Financial Instruments Directive (MiFID II) and the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation14does not apply to most personal pension products, so such products fall within the scope of national legislation.
With markets for personal pension products left exclusively to national regulation, information asymmetry occurs between providers and savers, particularly in a cross-border context. Accordingly, savers may be insufficiently aware of the actual performance of their personal pension products, or even unable to switch providers. If providers at national level do not give savers sufficient information, this can reduce trust in personal pension product providers and result in fewer transactions, lower levels of engagement with pension provision and poor decision-making by savers.
The portability of personal pension products is a concern for people moving to another EU country while trying to maintain the same product and provider. Currently, when moving to another Member State, people have no choice but to search for a new product offered by a provider in the new Member State with substantially different rules, instead of continuing to save in their former Member State. National tax incentives encourage people to save for retirement and are key to promoting the take-up of personal pensions. Losing such tax benefits when moving to another Member State is a major barrier to the cross-border portability of personal pension products. Member States acting alone cannot remedy such portability issues.
Second, regarding the effectiveness test, action at EU level can help remedy the consequences of market fragmentation, particularly in terms of costs. If no EU action is taken, asset pools are likely to remain small and limited to national borders, without economies of scale, and competition would remain limited to domestic providers. Individual savers are therefore unlikely to benefit from the lower prices and better product ranges that would result from efficiency gains and returns on large asset pools. Fragmentation is expensive also for providers: divergence in national regulation means extra compliance costs. There are limited incentives for providers to offer products cross-border, mainly due to high costs. By contrast, a standardised EU personal pension product is expected to cut providers’ costs by creating larger asset pools. For example, a study has shown that spreading fixed costs over a larger pool of members could reduce administration costs by 25 %15.
The creation of an EU legislative framework for personal pensions would reduce providers’ costs by creating economies of scale, particularly in relation to investment and administration. An EU personal pension framework would help providers operate across borders as it would allow them to centralise certain functions at EU level (rather than relying on local operations or outsourcing). Standardisation would make it easier for providers to offer a pension solution to corporate clients active in several Member States and looking for an EU-wide personal pension for their employees. This could also lead to efficiency gains in distribution, for example by using digital channels to sell personal pensions. An EU legislative framework for personal pensions could be accompanied by EU policy work in the area of financial technology.
Directive (EU) 2016/97, Directive 2014/65/EU, Regulation (EU) No 1286/2014.
Ernst & Young, Study on a European Personal Pension Framework for the Commission. See section 3.2
below.
Increasing the take-up of personal pensions could help secure adequate replacement rates in the future as a supplement to state-based and occupational pensions. A greater choice of safe and high quality personal pension products benefits all workers, whether employed or self-employed, and whether they have taken up a job in another Member State or not. An EU single market for personal pensions would make the product accessible to a wider range of people. Minimum product requirements laid down in EU rules would create transparency, simplicity and safety for PEPP savers. In addition, it would accommodate the increasing mobility of EU citizens and the increasingly flexible nature of work.
2.3. Proportionality
Under the principle of proportionality, the content and form of EU action should not exceed what is necessary to achieve the objectives of the Treaties. In principle, it is already possible to offer personal pension products in all Member States. However, compared with their market potential, they do not contribute to channelling enough savings towards capital markets and to achieving the Capital Markets Union. In addition, the features of some existing personal pension products are insufficient, as are the development of cross-border portability and the provision of personal pension products.
The policy options set out in the impact assessment accompanying this proposal include taking no action at EU level, the PEPP framework and harmonising national personal pension regimes.
The ‘no EU action’ scenario would not achieve the above objectives. Conversely, the harmonisation of national regimes would make it possible to achieve the objectives but would also require full harmonisation of very different national situations — personal pensions are well-developed in some Member States and not in others. This option was assessed as too burdensome to reach the objectives. In this context, it is appropriate to propose the PEPP framework for an EU-wide personal pension product that would complement existing national regimes.
The impact assessment also evaluated the options for the key features of the PEPP and the tax implications of the recommended features. The key features on distribution, investment policy, provider switching and cross-border elements have been designed to provide sufficient consumer protection and make the framework attractive to future PEPP providers. For example, on distribution, sectorial rules would apply to a large extent. On investment policy, the default option would set a requirement to ensure capital protection but providers would be able to propose alternative investment options. Switching providers would be allowed but the frequency of switching would be restricted. On cross-border portability and supply, the recommended option is based on the technique (currently used by some IORPs) of creating national compartments when changing Member States, but it would be further streamlined for the benefit of PEPP savers.
The administrative burden of the PEPP would be limited as the proposal amounts to adding a new product category to the existing portfolio of products provided by insurers, pension funds, investment firms, asset managers and banks, all subject to regulatory oversight by national competent authorities under existing regulatory frameworks. Public authorities might impose new reporting requirements on providers as regards the provision of PEPPs and in particular to monitor the cross-border distribution of PEPPs. This administrative burden should be proportionate to the risks of providing PEPPs on a cross-border basis and would enable market monitoring, ensure appropriate supervision and contribute to consumer protection.
2.4. Choice of the instrument
Article 114 TFEU allows the adoption of acts in the form of a regulation or directive. A regulation was selected here for the reasons outlined below.
First, as a regulation is directly applicable in all Member States, it would enable a quicker take-up of the PEPP and contribute more rapidly to addressing the need for more pension savings and investments in the Capital Markets Union context.
Second, as the proposal would harmonise the core features of the PEPP, they must not be subject to specific national rules, so a regulation is more appropriate than a directive in this case. However, any features that fall outside the scope of the proposal (e.g. accumulation phase conditions) would of course be subject to national rules.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER
Contents
- CONSULTATIONS
- or portability. For instance, some existing personal pension products do not allow savers to switch
- Product (PEPP) by end June 2017. This will lay the foundations for a safer, more
- complement the existing pension products and schemes, and support the cost-efficiency of
- Further non - le g isl ati ve measures taken by the Commission in the pensions area include the
- 10 11
- Council Directive 98/49/EC of 29 June 1998 on safeguarding the supplementary pension rights of
- Directive 2014/50/EU of the European Parliament and of the Council of 16 April 2014 on minimum
- Directive 2016/2341/EU of the European Parliament and of the Council of 14 December 2016 on the
- to make it easier for research staff to keep their pension arrangements as they move between research
- 14 15
- 23 24 25
- assets (objective of improving the product features on the personal pension market); and
- On the information provided during the term of the PEPP contract, the provider must produce
- Chapter IX divides the supervisory responsibilities between EIOPA and the national competent authorities. EIOPA is required to monitor pension schemes established or
ANDIMPACTASSESSMENTS
3.1. Stakeholder
consultations
The Commission carried out a public consultation on EU personal pensions (including a public hearing) between July and October 2016, which received 585 contributions in total from a broad range of stakeholders16. The responses revealed a strong interest from private individuals from all across the EU in simple, transparent and cost-effective personal pension products. The public consultation also requested feedback from professionals on the feasibility of an EU personal pension framework, including a PEPP. Overall, they consider that the PEPP framework represents a good opportunity to develop a new pension product, and some professionals are already preparing to launch a PEPP.
3.2. Collection and use of expertise
The proposal is based on a study carried out by Ernst & Young on behalf of the Commission on a European personal pension framework. The study, completed in June 2017, maps in particular the tax requirements and other legal requirements applicable across all Member States, and assesses the market potential for a PEPP. The main conclusion of the study is that tax regimes across the EU are very diverse, and this requires sufficient flexibility in an EU framework on the PEPP to adapt to national criteria. In addition, the study concludes that the PEPP would see the personal pension market grow in value from EUR 0.7 trillion to EUR 2.1 trillion by 2030 with the PEPP, versus EUR 1.4 trillion without the PEPP (assuming the PEPP would benefit from the existing national tax incentives for personal pension products).
The proposal is also based on technical advice from the European Insurance and Occupational Pensions Authority (EIOPA)17 on developing an EU single market for personal pension products. This advice builds on an earlier EIOPA preliminary report Towards a single market for personal pensions18. The technical advice recommends:
16 See the summary of the public consultation in Annex 2 of the Impact Assessment.
17 EIOPA’s advice on the development of an EU Single Market for personal pensions products (PPP), July 2016,
https://eiopa.europa.eu/Publications/Consultations/EIOPA%27s%20advice%20on%20the%20developm ent%20of%20an%20EU%20single%20 market%20for%20personal%20pension%20products.pdf
18 EIOPA, Towards an EU single market for personal pensions, 2014, available at:
• choosing the PEPP over ha rm onisation of national regimes; and
• defining key PEPP features at EU level, while leaving certain other tax-sensitive features to national law.
As part of the key features, the technical advice recommends in particular the inclusion of a safe default investment option and detailed requirements on transparency of information to PEPP savers. The proposal is in line with these recommendations.
Finally, the proposal builds on the following:
• OECD study Stocktaking of the tax treatment of funded private pension plans in OECD and EU countries;19
• Commission-OECD project on taxation, financial incentives and retirement savings;
• OECD study Core Principles of Private Pension Regulation;21 and
• Oxera study on the position of savers in private pension products across 14 EU Member States.22
3.3. Impact assessment
The PEPP proposal is supported by a positive opinion issued by the Regulatory Scrutiny Board (RSB) on 22 May 201723, after a first negative opinion issued on 2 May 201724.In its comments, the RSB suggested that the impact assessment should focus more on analysing the key product features of the PEPP, and explained how the PEPP features compare to those of existing personal pension products.
The RSB also requested a m ore deta iled quantification of the impact of the PEPP option and clarification of the underlying assumptions. The final version of the impact assessment addresses these points by:
• detailing the various options for the PEPP features;
• explaining how they take inspiration from existing personal pension products with the highest penetration index; and
• quantifying the extra volumes generated by the launch of the PEPP on the personal pension market and the effect on capital markets.
The proposal is in line with the conclusions of the impact assessment .
The general policy alternatives examined in the impact assessment consisted of the following options:
https://eiopa.europa.eu/Publications/Reports/EIOPA-BoS-14-029_Towards_an_EU_single_market_for_Personal_Pensions-_An_EIOPA_Preliminary_Report_to_COM.pdf
www.oecd.org/pensions">www.oecd.org/pensions www.oecd.org/daf/fin/private-pensions">www.oecd.org/daf/fin/private-pensions Available at:
www.oecd.org/daf/fin/private-pensions">www.oecd.org/daf/fin/private-pensions- Regulation.pdf www.oxera.com/Latest-Thinking/Publications">www.oxera.com/Latest-Thinking/Publications
Available at: ec.europa.eu/transparency/regdoc/?fuseaction=ia Available at: ec.europa.eu/transparency/regdoc/?fuseaction=ia Available at: ec.europa.eu/transparency/regdoc/?fuseaction=ia
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• no EU action;
• PEPP framework; or
• harmonising the national personal pension regimes.
Under the first option, the shortcomings identified (fragmentation of national capital markets would remain, insufficient features of existing personal pension products, and limitations to cross-border portability and provision) would still exist. By contrast, the third option would address these shortcomings. However, this would also involve harmonising national tax regimes for personal pensions, which would require the unanimous support of Member States. In addition, there would be significant compliance costs for providers: first, they would have to adapt all their personal pension products to the new regime. In addition, on an ongoing basis, this regime may differ significantly from the sectorial regimes under which providers are distributing their other financial products.
The impact assessment therefore concludes that the second option is the preferred policy choice as it offers an additional harmonised pan-European framework that complements the existing national regimes and can overcome the shortcomings identified by using targeted solutions that avoid excessive compliance costs.
The PEPP framework would have a positive economic impact. According to the EY study, it would result in the assets under management in the personal pension product market growing from EUR 0.7 trillion to EUR 2.1 trillion by 2030 with the PEPP versus EUR 1.4 trillion without the PEPP, assuming that tax incentives are granted to the PEPP.
It would also have a positive social impact as more people would be able to complement other sources of income in retirement with PEPP and thus improve the adequacy of their pensions. It would in particular have a greater impact for workers in non-standard employment, self-employed and mobile workers who have not sufficient or no access to state or occupational pension systems. The positive social impact would be higher in Member States with a li m ited choice and limited take-up of personal pension products at present.
No significant environmental impact is expected, although encouraging providers to take into account environmental, social and governance factors in their investments (associated with disclosure requirements) can have a positive effect in terms of sustai n ability.
3.4. Fundamental rights
The proposal respects the fundamental rights and observes the principles recognised by the Charter of Fundamental Rights of the European Union, in particular the right to the protection of personal data, the right to property, the freedom to conduct a business and the principle of equal ity between men and women. It contributes to the objectives of Article 38 of the Charter which provides for a high level of consumer protection.
4. BUDGETARY IMPLICATIONS
The proposal has implications for the EU budget. In particular, the additional tasks for the European supervisory authorities (ESAs) will require an increase in resources as well as certain operational investments. These tasks include:
• authorisation of PEPPs;
• the develop ment of additi onal guidance; or
• a central register for all authorised PEPPs.
Costs of EUR 1 000 000 have been estimated for 2019, including a one-time investment for operational m atters, and will total around EUR 1 200 000 per year by 2021. Under the current co-financing arrangements of the ESAs, 40 % of this funding will be included in the EU budget and will, as such, not go beyond what is set out in the current multiannual financial framework that runs until 2020.
5. OTHERELEMENTS
5.1. Implementation plans and monitoring, evaluation and reporting arrangements
After the Regulation has entered into force, the Commission will monitor key mid-term performance indicators for the objectives. These indicators include:
• the total uptake ----- in terms of assets under management ----- of personal pension
products and the geographical and sectorial distribution of PEPP providers and investments in PEPPs (objective of increasing investment in the EU and contributing to completing the CMU);
• the number of PEPP registrations and the relative share of personal pension products
(including national products and the PEPP) as a percentage of households’ financial
• the number of providers using a passport for cross-border activity and the relative share of PEPPs with more than one national compartment as compared to all personal pension products (objective of increasing the cross-border provision and portability of personal pension products).
The data collected by the ESAs in particular could help monitor the PEPP performance indicators.
In addition, the Commission will assess to what extent the Commission recommendation for preferential tax treatment for the PEPP has been taken up by Member States through national legislation.
T he proposal includes an evaluation five years after the date of application of the Regulation.
5.2. Detailed explanation of the specific provisions of the proposal
The proposed Regulation on a pan-European Personal Pension Product has 11 chapters. Apart from the first chapter (General provisions) and last chapter (Final provisions), the structure follows the life cycle of the product.
Chapter I outlines the objectives of the proposed Regulation, which include:
• raising more capital and channelling it towards European long-term investments in the real economy;
• offering enhanced product features so that citizens benefit from a simple, safe and cost-effective personal pension product while being able to choose from different types of PEPP providers; and
• encouraging PEPP cross-border provision and portability.
Chapter I contains the definitions of important concepts for the proposed Regulation, including ‘pan-European Personal Pension Product’, ‘PEPP account’, ‘retirement benefits’, ‘accumulation phase’, ‘decumulation phase’, ‘provider’ and ‘distributor of a PEPP’, ‘portability of the PEPP’ and ‘switching providers’.
The Article on applicable rules explains the interaction between the proposed Regulation, the contractual provisions for PEPP and national rules for regulating the subject matter.
Chapter II introduces the principle that only financial undertakings already authorised at EU level by the competent authorities under the applicable sectorial legal instrument, would be eligible to apply for authorisation to provide PEPPs (i.e. to create and distribute them). The authorisation to act as a PEPP provider, i.e. to use the ‘PEPP’ label for personal pension products, will be granted by a single EU authority, EIOPA. The designation ‘PEPP’ or ‘pan-European Personal Pension Product’ in relation to a personal pension product may only be used where the personal pension product has been authorised by EIOPA to be provided under the designation ‘PEPP’. Existing personal pension products may be converted into PEPPs following authorisation by EIOPA, which must consult the competent supervisory authority of the financial undertaking before deciding whether to reject or approve its application.
In addition, Chapter II provides rules so that PEPPs might also be distributed by financial undertakings that have not created them. This can be done by financial undertakings that have received a specific authorisation for distribution by their national competent authorities, and by insurance, reinsurance and ancillary insurance intermediaries registered as such under Directive 2016/97/EU (the Insurance Distribution Directive).
Chapter III establishes the allocation of prerogatives between the competent authorities of home and host Member States in allowing the freedom to provide services and the freedom of establishment by PEPP providers. Acknowledging the concerns of some Member States about a possible uneven playing field due to the different prudential regimes to which the different types of potential PEPP providers are subject to, the ‘passporting’ regime would mitigate the competitive effects of the different prudential regimes to a large extent, insofar as it relies on the competent authorities of home and host Member States along with the ‘label’ authorisation entrusted to EIOPA.
Chapter III also includes the provisions on portability. This enables PEPP savers who change their domicile by moving to another Member State to continue paying into a PEPP that they have already taken out with a provider in the original Member State. In such a case, PEPP savers are entitled to keep all the advantages and incentives connected with continuous investment in the same PEPP.
The mechanism behind the portability service envisages opening a new compartment within each individual PEPP account. This compartment corresponds to the legal requirements and conditions for using tax incentives fixed at national level for the PEPP by the Member State to which the PEPP saver moves. The mechanism for opening new compartments, transferring the accumulated rights between these compartments and providing information about this option is laid down in the proposed Regulation and follows a staggered approach. During the first three years of application of the Regulation, PEPP providers will have to provide information on the available compartments. Afterwards, PEPP savers will be entitled to open national compartments that cover all Member States’ regimes.
Chapter IV aims to achieve the greatest possible transparency, in particular for potential PEPP savers, on PEPP features. The rules clarify in particular that all documents and information on PEPP will be provided to prospective PEPP savers and PEPP beneficiaries electronically – electronic distribution is the default option. Upon request, PEPP providers and distributors must also provide those documents and information free of charge in a durable medium.
In terms of advice, PEPP providers will be expected to conduct a suitability and appropriateness test of potential PEPP savers, although savers may waive their right to receive advice if they opt for the default option.
The cornerstone of providing pre-contractual information is the PEPP key information document. Its form, content and conditions of provision are described in detail in the proposed Regulation.
a ‘PEPP Benefit Statement’. This will include information on:
• the accrued entitlements or accumulated capital;
• full or partial guarantees under the PEPP scheme; and
• if applicable, the nature of the guarantee and mechanisms to protect accrued individual entitlem ents.
Chapter V deals with the accumulation phase of the PEPP, including investment rules for PEPP providers and PEPP savers. The provisions applicable to PEPP providers are derived from the prudent person rule and provide a safe and reliable framework for investment
policies.
As to PEPP savers, they are to be offered up to five investment options by PEPP providers, one of them being a default investment option that ensures that the PEPP saver recoups at least the capital invested. All investment options must be designed by PEPP providers on the basis of proven risk mitigation techniques that ensure sufficient protection for PEPP savers. Having concluded the PEPP contract, PEPP savers must select an investment option and must be able to change it free of charge once in every five years of accumulation.
Scope is left to Member States as regards all other conditions relating to the accumulation phase. Such conditions may include:
• age limits for starting the accumulation phase;
• minimum duration of the accumulation phase;
• maximum and minimum amount of in-payments and their continuity; and
• conditions for redemption before retirement age in case of particular hardship.
Chapter VI establishes the mechanism for appointing a depositary in the case of a PEPP scheme where PEPP savers and PEPP beneficiaries fully bear the investment risk. The provisions cover the safekeeping of assets, the oversight duties of the depositary and its liabil ity.
26 The requirement that a trustee, an investment manager of pension funds, or any fiduciary (a trusted
agent) must invest funds with discretion, care, and intelligence. Investments that are generally within the prudent person rule include solid 'blue chip' securities, secured loans, federally guaranteed mortgages, treasury certificates, and other conservative investments providing a reasonable return.
The proposed Regulation requires that procedures be set up to allow customers and other interested parties, especially consumer associations, to lodge complaints against PEPP providers and distributors. In all cases, complainants must receive replies. Appropriate mechanisms for impartial and independent out-of-court complaint and redress procedures for the settlement of disputes between PEPP savers and PEPP providers or distributors must also be put i n place.
The proposed Regulation includes the possibility for PEPP providers to cover the risk of death and other biometric risks.
Chapter VII regulates the switching of PEPP providers. Following a request by the PEPP saver, any positive balance will be transferred from a PEPP account held with the transferring provider to a new PEPP account opened with the receiving provider, and the former PEPP account will be closed. The switching service may be provided by PEPP providers established in the same Member State (domestic switching) or in different Member States (cross-border switching). A ceiling is envisaged for the total fees and charges applied by the transferring PEPP provider to the PEPP saver for the termination of the PEPP account held with it.
Chapter VIII leaves most of the PEPP conditions related to the decumulation phase to be determined by Member States ----- in particular:
• setting the retirement age;
• a mandatory link between reaching retirement age and the start of the decumulation phase;
• a minimum period of belonging to a PEPP scheme; and
• a maximum period before reaching retirement age for joining a PEPP scheme.
On the forms of out-payments (e.g. annuities, lump sums, income drawdown payments), by giving PEPP providers, PEPP savers and PEPP beneficiaries the freedom to contractually determine the form(s), the proposal imposes this flexibility on Member States as a mandatory condition, which may have an impact on the availability of national tax incentives for the PEPPs in some Member States.
Chapter IX divides the supervisory responsibilities between EIOPA and the national competent authorities. EIOPA is required to monitor pension schemes established or
distributed in the territory of the EU to verify that they do not use the designation ‘PEPP’ or
infer that they are a PEPP unless they are authorised under the proposed Regulation.
Chapter X describes which infringements of the provisions of the proposed Regulation may lead to penalties, how national competent authorities may impose these penalties and how infringements and penalties should be reported.
Chapter XI confers on the European Commission the power to adopt delegated acts in the areas of:
• conflicts of interest;
• inducements;
• selling PEPPs with and without advice;
• product oversight and governance requirements;
• provision of information during the contract term; and
• reporting to national authorities and investment options.
The Commission will also adopt regulatory technical standards on the content and provision of the key information document and implement technical standards on a standardised presentation format for the PEPP Benefit Statement.
The Commission is required to evaluate the Regulation five years after the date of entry into force of the Regulation. The evaluation would notably look at how its rules are working and the experience acquired in applying them, the extent to which the designation 'PEPP' has been used by PEPP providers, the geographical and sectorial distribution of PEPP providers and investments in PEPPs, the impact of this Regulation on the personal pensions market, the appropriateness of the information requirements under Chapter IV, the appropriateness of complementing this Regulation with provisions on incentives for investing in PEPPs, the existence of any barriers that may have impeded investment into personal pension products using the designation 'PEPP', including the impact on PEPP savers of other Union law, the level of fees and charges required by PEPP providers for opening new compartments within PEPP savers' individual PEPP accounts, and the impact of PEPP-related investment decisions on environmental, social and governance factors.