The European Commission has today unveiled its proposal for a pan-European personal pensions product (PEPP), with the draft regulation accompanied by a separate recommendation for the product’s tax treatment.

The Commission said PEPPs were designed to complement existing state-based occupational and national personal pensions and would not replace or harmonise personal pension regimes.

To ensure the PEPP “gets off to a flying start”, the Commission recommended EU member states grant the same tax treatment to the product as they do to similar existing national products, even if the new product did not fully match the national criteria for tax relief.

The proposed regulatory framework was set up in expectation of a wide range of providers being able to offer a PEPP, such as insurance companies, banks, occupational pension funds, and asset managers.

The PEPP forms part of the Commission’s plan to build a Capital Markets Union (CMU). The Commission believes the new pension product will help to channel more savings to long-term investments in the EU.

The Commission has also proposed the PEPP framework because of concerns that the European market for personal pensions had become fragmented and uneven, with offerings concentrated in a few member states and nearly non-existent in others.

According to an Ernst & Young study carried out for the Commission, the PEPP, with tax incentives granted, had the potential to double the growth of the personal pension market to €2.1trn by 2030.

The Commission’s proposal set out standards for core product features such as transparency requirements, investment rules, switching, and portability.

PEPPs will be authorised by the European Insurance and Occupational Pensions Authority (EIOPA) and can thereafter be distributed throughout the EU.

The products will be portable between member states, and consumers can choose between five savings options. Member states will set the conditions for the saving phase and pay-out of capital, as well as tax treatment.

PensionsEurope welcomed the Commission’s proposal as “a way to increase the overall pension savings and as one of the building blocks of the Capital Market Union”, but called on the Commission to promote occupational pension systems as well.

Matti Leppälä, secretary general of the trade body, also said it “will be important to ensure the respect of existing national personal pension legislations and products”.

“Tax incentives play an important role in defining the attractiveness of personal pensions, and we underline that the decision to take up the Commission recommendation will exclusively remain in the hand of each member state,” he added. “We hope that member states will decide to support pension savings.”

EIOPA also welcomed the Commission’s legislative proposal, saying that it follows its advice “to create an attractive PEPP in the form of a second regime”.

InsuranceEurope gave a cautious assessment of the Commission’s proposal, saying that, “at first sight”, it welcomed some of the PEPP’s features, such as the default investment option that would ensure capital protection for PEPP savers.

It said the legislative initiative was important “but also very complex”, and that the insurance industry needed more time to study the proposal to assess whether it would be attractive to savers and providers.

EFAMA, the trade association for the European investment industry, said it “fully supports” the Commission’s proposal.

Peter De Proft, EFAMA director general, said: “The PEPP framework can succeed in breaking down barriers between national markets if it allows a broad range of providers the possibility to offer innovative and cost-effective pension products on a pan-European scale.

“If this is achieved, I have no doubt that asset managers will have a significant role to play in the success of the PEPP.”

The proposal will now be discussed by the European Parliament and the Council.

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