Towards A Single European Market On Private Pensions – The Pan-European Personal Pension Product

Saving for retirement will soon be facilitated by a personal pension product with truly pan-European characteristics. On 25 July 2019, the Regulation on a pan-European Personal Pension Product (PEPP Regulation) was published in the Official Journal of the European Union and will enter into force on 14 August 2019. The PEPP Regulation constitutes an opportunity for Luxembourg players to position themselves on the European private pensions market with this new PEPP product that could be distributed in the entire European Union. The PEPP Regulation will only become applicable 12 months after the publication of the delegated acts referred to in the regulation. This is not expected to be the case before the end of 2021, however, it is important for possible PEPP providers to start thinking about the way in which they can tailor and market PEPP products to suit their business models.

PEPP providers, i.e. credit institutions, life insurance undertakings, certain institutions for occupational retirement provision (IORPs), investment firms and UCITS management companies as well as AIFMs, will be able to benefit from a single EU market for personal pensions and a facilitation of cross-border distribution, including an EU passport. Due to the standardisation of the main PEPP features, PEPP providers will only need one single product registration in order to sell PEPPs and distribute them in multiple EU Member States.

The PEPP - a voluntary contract between a PEPP saver and a PEPP provider

The personal pension product, or PEPP, is a product which is based on a contract between an individual saver and a PEPP provider on a voluntary basis and thus is complementary to any statutory, i.e. state provided pension product (Pillar 1) or any occupational, i.e. workplace pension product (Pillar 2). It provides for long-term capital accumulation with the explicit objective of providing income on retirement and with limited possibilities for early withdrawal before that time.

PEPP providers may offer up to six investment options to PEPP savers. The Basic PEPP, the only product described in more detail in the PEPP Regulation, is the saver's default investment option and aims at preserving the savers' capital. Costs and fees for the Basic PEPP will be capped at 1% of the accumulated capital per annum and integrates all administration costs, investment costs and transaction costs.

It is important to note that the capped fee amount only applies to the Basic PEPP. As...