The 1% cost cap on the Pan European Pension Product (PEPP) is one of the reasons for its limited take-up, and must therefore be scrapped, according to the European Insurance and Occupational Pensions Authority (EIOPA).
In a staff paper on the future of the PEPP, the European pension regulator also suggests the introduction of automatic enrolment in a pension product for all European Union citizens.
The PEPP was introduced in March 2022 with the aim of increasing the share of savings by EU citizens in long-term pension plans.
“But its uptake in the EU has been limited so far, warranting a re-assessment,” noted EIOPA.
There is currently only one PEPP provider, the Slovakian securities broker-dealer Finax, which offers a PEPP for residents of Slovakia, Czech Republic and Croatia.
The PEPP was designed as an affordable default investment option with costs capped at 1% of the accumulated capital per year. While EIOPA maintains the 1% cost cap is “not particularly low in the long-term,” it acknowledges that “the fee cap may limit providers’ ability to offer PEPP given initial expenses and lack of scale”.
EIOPA, therefore, proposes to “focus the PEPP conversation on value for money,” suggesting that “in the short-term, to aid the supply of PEPPs and to reflect the initial expenses of introducing PEPPs to the market, PEPP fees may be temporarily higher than in the medium to long-term”.
Before the summer, pension industry association PensionsEurope proposed reforming the PEPP, which so far is characterised as a “failure”, as one of the main priorities for the incoming European Commission.
Commenting on the staff paper, PensionsEurope chief executive officer Matti Leppälä said it presented “interesting ideas.” However, he noted that it would be for the European Commission to come up with legislation to amend the PEPP.
A spokesperson for Insurance Europe told IPE: “It is welcome that a range of issues are being considered to renew interest in the PEPP. Letting go of the 1% cost cap is a good start, yet EIOPA also rightly suggests that this was not the only barrier preventing providers from offering PEPPs.”
Auto-enrolment
Separately, EIOPA suggested in its paper the possibility of introducing a system of auto-enrolment in a personal pension scheme at EU level for every EU citizen.
“This could be implemented, for instance, by opening a PEPP for every EU citizen when they reach the age of 18 or enter the workforce, allowing for regular or intermittent contributions,” according to EIOPA.
Auto-enrolment “would drastically increase PEPP participation and be conducive to the development of a genuine EU internal market for personal and occupational pensions,” the regulator noted, adding there were various positive examples across the globe that confirmed the positive impact of such a measure, including the superannuation funds in Australia and the UK’s auto-enrolment system.
The Insurance Europe spokesperson added: “Opening discussions on auto-enrolment to enhance take-up of pension products is also a positive idea. However, we cannot comment on EIOPA’s suggestion to do this through a revised PEPP when many questions will need answering, such as how it will work in practice and how it will be compatible with national systems.”
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