The European Fund and Asset Management Association (EFAMA) has outlined a series of suggested amendments to the Pan-European Personal Pension product (PEPP) – and reaffirmed its support, ahead of changes planned for the end of June.
The European Commission is expected to launch a legislative proposal on a framework for a Pan-European Personal Pension product (PEPP) at the end of June, that will see a standardised pension product that can sold across EU member states, without additional bureaucracy and costs.
EFAMA has published a briefing document that outlines a series of savings statistics and recommendations that it hopes that the European Commission will consider.
It shows that households across Europe held more than €7.6 trillion in bank accounts at end 2016 – around 41% of households’ financial wealth, according to the document issued by EFAMA.
The document read: “This is clearly a huge amount of savings held in short-term, liquid assets, with very limited return potential. At a time when the average replacement rate from public pensions in EU28 is expected to fall to 36% by 2060, EU citizens should be encouraged to start saving more and earlier, and to re-allocate part of their savings towards more market-based instruments.”
EFAMA added that the current fragmentation of national markets in the personal pension sphere means there is less choice and competition at the moment. A well-regulated, EU-labelled PEPP would, it states, ultimately give people access to low-cost personal pensions and give them the chance to get better returns for their savings.
For a PEPP to succeed in making personal pensions more attractive, EFAMA makes three recommendations:
- The PEPP should be a highly standardised product that can be sold across member states with an EU product passport. This will generate economies of scale and reduce costs. In particular, investment rules and disclosure requirements should be standardised at EU level.
- The PEPP framework should give member states the freedom to introduce country specific rules in a limited number of areas which are central to the organisation of their pension systems, such as the beneficial tax treatment granted to pension products, the determination of the retirement age and the features of eligible pay-out options.
- Finally, the framework should give an adequate degree of flexibility for potential PEPP providers. In this respect, it should be up to the providers to decide whether they want to offer life-cycle investment strategies or strategies with minimum return guarantees as a default option.
Peter De Proft, director general, EFAMA said: “The PEPP can be the solution to the problems which hinder the proper functioning market for personal pensions in Europe, in particular the high level of cost, the limited product choice and the lack of portability between member states. The political importance of the project is immense.
“The PEPP can be one of the most tangible initiatives that the Juncker Commission can take to reconcile the young generation of European savers with the European project.”