As Europe’s population ages and life expectancy increases, there is mounting pressure on public and occupational pension systems. Irish Funds believes the time is right for the Pan European Pension Product (PEPP) and that it can offer a number of opportunities to individuals, employers and EU member states.
What would the PEPP look like and how would it work?
At its core, the PEPP would be a personal pension product that would empower people to save for retirement. Upon retirement, they could keep it invested, purchase an annuity or start taking distributions from the accumulated balance.
To be a success, the PEPP should be safe (backed by strong consumer protection), highly standardised, simple, transparent, self-effective and well governed. It should also be made available alongside existing national personal pension products to complement EU public and occupational pensions.
Individuals would be able to invest in the PEPP through a variety of distribution channels (online platforms, financial advisers or employers) and select the most appropriate investment option to meet their needs, risk appetite or investing preferences. Raising consumer awareness and educating consumers should form a key part of the initiative.
The PEPP options would be managed either by the PEPP provider or sub-delegated to an investment manager.
While the European Insurance and Occupational Pensions Authority (EIOPA) would set appropriate standards for the operation of the PEPP, it should be regulated by the relevant pensions’ regulator. PEPP providers should be subject to regulatory authorisation and supervision under EU legislation.
The benefits of the PEPP
The PEPP offers a once-in-a-generation opportunity to reshape the face of European pensions provision and address Europe’s pensions savings gap:
- For ordinary citizens – the PEPP would provide individuals with an additional flexible form of retirement savings with greater choice and value for money.
- For employers – An easy-to-use private pension option as an additional employee benefit. The PEPP would be especially valuable for SMEs.
- For member states – The PEPP represents a scalable solution to the pension problem. It will support the long-term sustainability of existing state and occupational pensions. It will also allow a way to offer pensions provision to the increasing numbers of self-employed. Lastly, it will create a regular pool of capital ready to be invested in the economy.
How the funds industry can help ensure success
While there are challenges to creating a personal pension product that both crosses borders and fits in with each member state’s pension system and culture of retirement savings, the funds industry has a responsibility to make PEPP a success. Our experience can help in providing a simple, flexible, portable cross-border retirement savings vehicle based on the Ucits model.
Pat Lardner is chief executive of Irish Funds
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