The European Union has removed another barrier to free movement of people within the bloc with the launch of a personal pension product that can be ‘carried’ across borders.
At present EU legislation allows the aggregation of state pensions and occupational pensions, but the private pension market remained fragmented.
This is meant to change with the new ‘pan-European personal pension product’ (PEPP), set up by a regulation that took effect on March 22nd.
Anyone who is resident in the EU, Norway, Iceland or Liechtenstein will be able to sign up to a PEPP.
Savers will have the possibility to choose a provider from another EU country. People moving within the bloc will also be able to ‘carry’ the PEPP with them and continue saving for retirement in the same pot.
According to a survey conducted in 16 countries by Insurance Europe, the organisation representing insurers in Brussels, 38% of Europeans do not save for retirement, with a proportion as high as 60% in Finland, 57% in Spain, 56% in France and 55% in Italy.
The groups least likely to have a personal pension plan are women (42% versus 34% of men), unemployed persons (67%), self-employed and part-time workers in the private sector (38%), people who are divorced or single (44% and 43% respectively), and 18-35 years old (40%).
So how will this scheme work in practice? Europe Street asked the European Insurance and Occupational Pensions Authority (EIOPA) and this is a summary of the information collected.
What is the pan-European Personal Pension Product (PEPP)?
The PEPP is a voluntary personal pension that can complement state pensions, occupational pensions and national private pension schemes. It will be available to all consumers in the European Economic Area, regardless of the country they live in or move to.
Who can sign up to a PEPP?
Everyone can save in a PEPP: people employed part-time or full-time, self-employed, in any form of modern employment, unemployed or in education. A PEPP holder can continue saving when the professional situation changes.
The condition to open a PEPP is to be resident in the European Union, Norway, Iceland and Liechtenstein (the European Economic Area). It is not possible for a person residing outside this bloc to subscribe to a PEPP. So British citizens who live in the EU can sign up to a PEPP, while EU citizens in the UK cannot.
If PEPP holders move the residence outside the EU, they cannot continue saving within the PEPP until they move the residence back. In any event, they should seek professional advice on the consequences of the move on the taxation of their savings as different rules apply in different countries.
What investment options does a PEPP provide?
Under the EU regulation, PEPP providers can offer a maximum of six investment options, including a basic one. The basic PEPP is low-risk and its costs are capped at 1% of the accumulated capital per year.
How does the PEPP work in practice?
Anyone can sign up to a PEPP in the country of residence or from a provider in another EU country.
Savers who move to another EU country can continue contributing to the same PEPP. The provider will just create a sub-account for that country. If the provider is not in a position to do so, the consumer has the right to change provider and free of charge.
Can an existing personal pension be converted into a PEPP?
The EU regulation does not exclude this possibility as long as the product meets the PEPP requirements.
Different countries offer different tax benefits, so which rules apply to a PEPP?
PEPP savers are treated in the same way as savers in national pension schemes in the country of residence. Possible tax incentives in a member state only apply to the relevant sub-account. Over time, the expectation is that member states’ tax rules on personal pension products will get closer to each other.
Can a PEPP be trusted?
PEPPs are regulated products that can be distributed only by authorised financial institutions, such as banks, insurance companies, pension funds and wealth management firms.
In case of problems, savers can, either individually or collectively, submit complaints to the competent authorities in the country of residence.
Where can I sign up to a PEPP?
It will still take a few months before PEPPs become available on the market. The legislation just came into effect and only now eligible providers can request an authorisation for their products.
When this will happen, the products and their features will be listed in the EIOPA public register.
In a survey carried out by EIOPA to understand the potential market, 21 entities reported the intention to offer a PEPP.
An analysis by Dutch bank Rabobank in 2019 anticipated that large insurers, asset managers and big tech or fintech companies would be the most likely to offer these schemes.
A spokesperson of the Dutch Pensions Federation (Pensioen Federatie) told Europe Street that the PEPP “could be beneficial for those in European countries who do not have access to workplace pensions, as self-employed and workers in new forms of employment, or where personal pensions offered at the national level are not reliable or attractive”.
“The PEPP could be also useful for mobile European citizens with an international career across multiple member states,” the spokesperson said.
More information can be found on the EIOPA website.
Claudia Delpero © all rights reserved
Image via Pixabay
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