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June 19, 2018

The European Council has agreed its negotiating stance on the proposal for pan-European pension product (PEPP), a new class of personal pension scheme. The regulation would add a pan-European framework for people who wish to use PEPPs as a saving option. PEPPs would complement state-based, occupational, and national personal pension schemes, but not replace or harmonize them.

The pension plan providers would be able to develop PEPPs in different member states and pool assets more effectively. Electronic distribution channels would enable providers to reach consumers throughout the EU and an EU passport would enable providers to sell PEPPs in different member states. Additionally, when a product reaches maturity, providers and savers would have different options for payouts. PEPPs would present the following advantages for savers:

  • Savers would choose from a broad range of PEPP providers in a more competitive environment. They would be able to choose between a default safe investment option and options with different risk-return profiles.
  • The regulation would ensure that savers are aware of a PEPP's key features.
  • Savers would have the right to switch providers, both domestically and across borders, after a minimum of five years from the conclusion of the contract or from the most recent switch. (They could do so more frequently if the PEPP provider so allows.) The fee for doing so would be capped.
  • Savers would be able to continue contributing to their PEPP if they move to another member state.

The draft regulation is aimed at providing greater choice for people who wish to save for their retirement while boosting the market for personal pensions. According to EC, only 27% of Europeans between 25 and 59 years of age have subscribed to a pension product. Under the proposal, PEPPs would have the same standard features wherever they are sold. They would be offered by a broad range of providers, principally insurance companies, banks, occupational pension funds, investment firms, and asset managers.

Negotiations with the European Parliament can proceed as soon as the Parliament has agreed its stance. A qualified majority is needed for adoption by the Council, in agreement with the European Parliament. The legal basis for this is article 292 of the Treaty on the Functioning of EU. This regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply twenty four months after its entry into force.

 

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Keywords: Europe, EU, Banking, Securities, Insurance, PEPP Regulation, Pensions, European Council

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