In June 2017, the European Commission published a proposal for Regulation on a Pan-European Personal Pension Product (PEPP). The Regulation deals with the registration, manufacturing, distribution and supervision of PEPP. PEPP is intended as an optional, 2nd regime instrument, complementary to the existing state-based (pillar 1), occupational (pillar 2) and national personal pensions (pillar 3) and has standardised key product features. The Commission described PEPP as “a new, additional opportunity to save for retirement: simple, transparent & portable”. The PEPP proposal was launched together with a Recommendation on the tax treatment of personal pension products, including PEPP.The proposals are part of the bigger framework of the Capital Markets Union. Regulations are directly applicable in the EU Member States.
Regulation on PEPP
After the European Parliament and the Council of the EU had proposed several amendments to the Commission’s proposal for Regulation on PEPP, the three European legislators agreed on the text in trilogue in early 2019.
BIPAR and its member associations have been very active on this file all along the legislative process.
- Some key features of PEPP
- Some key elements from an intermediary perspective and on which BIPAR focused during the discussions:
- PEPP is available to individuals with their residence in one of the EU Member States, irrespective of their nationality.
- PEPP can only be provided and distributed in the Union where national authorities decide that they can be registered. This is done in a central public register, kept by EIOPA
- PEPP can be provided by credit institutions, insurers (engaged in direct life insurance), IORPs under certain conditions, investment firms providing portfolio management, investment companies or management companies and EU alternative investment fund managers.
- Insurance intermediaries (under IDD) and investment firms providing advice (under MiFID II) can distribute PEPP
- PEPP providers have to offer a “Basic PEPP”, which is a “simple and affordable default investment option” and where costs and fees shall not exceed 1 % of the accumulated capital per year. The Basic PEPP has to provide capital protection (capital guarantee or other risk mitigation techniques with the objective to ensure that savers recoup the capital invested). Providers may offer up to 6 investment options (including the Basic PEPP). All investment options shall be designed on the basis of a guarantee or risk-mitigation technique which shall ensure sufficient protection for PEPP savers.
- There will be a precontractual PEPP Key Information Document, largely following the example of the PRIIPs KID. This PEPP KID will also contain a heading on costs, including the cost of distribution. The PEPP KID shall include a clear indication that the PEPP provider or PEPP distributor shall provide information detailing any cost of distribution that is not already included in the costs specified, so as to enable the PEPP saver to understand the cumulative effect that those aggregate costs have on the return of the investment. On top of the PEPP KID, there is a standardised PEPP Benefit Statement during the product lifetime.
- PEPP portability: this concerns the possibility of continuing to contribute into an existing PEPP account when changing residence to another Member State. In case portability is not available, consumers can switch provider free of charge or can continue to contribute to the PEPP of the previous country. Within three years of the date of application of the Regulation, each PEPP provider shall offer national sub-accounts for at least two Member States upon request addressed to the PEPP provider.
- Different forms of outpayment are possible (and the saver can change his/her chosen outpayment form).
- PEPP providers are encouraged to consider sustainability factors in their investment decisions and risk management systems.
- For insurers and insurance intermediaries who distribute PEPPs, most of the IDD’s information requirements and conduct of business rules, as well as the IDD’s IBIPs chapter apply (with the exception of the rules regarding advice, information conditions, POG and execution-only). These IDD rules apply unless IDD was implemented in a stricter way at national level. Most of the PEPP Regulation’s distribution and information requirements also apply to insurers and insurance intermediaries that distribute PEPPs, except for the PEPP suitability test (the IDD suitability test applies instead). There is no single distribution regime with general application of the MiFID II inducement rules (including ban on commission) as had been proposed by the European Parliament.
- For investment firms that provide advice and distribute PEPP, the MiFID II rules on conflict of interest, general principles and information to clients, suitability/ appropriateness and reporting to clients apply, as well as most of the PEPP distribution and information requirements (here also except for the PEPP suitability test as the MiFID II suitability test applies instead).
- Ancillary insurance intermediaries cannot distribute PEPP.
- There is mandatory advice (with a suitability test) and a demands and needs test for PEPP providers and distributors, for all PEPPs (also for the “Basic PEPP” and when using automated systems). PEPP providers and distributors have to ensure and demonstrate to authorities on request that natural persons giving advice on PEPP possess the necessary knowledge and competence to fulfil their obligations under the PEPP Regulation (without prejudice to stricter applicable sectorial law)
- At the time of decumulation, PEPP providers and distributors will have to offer the PEPP saver personalised benefit projections, including a personal recommendation to the PEPP saver on his or her optimal form of outpayments.
- Insurance intermediaries registered under the IDD and investment firms authorised in accordance with MiFID II for the provision of investment advice may distribute PEPPs within the territory of a host Member State under FOS or FOE, provided they do so in compliance with the relevant rules and procedures established by or under the IDD / MiFID II.
- Regarding Product Oversight and Governance, PEPP distributors shall have in place adequate arrangements in place to obtain the information and to understand the characteristics and identified target market of each PEPP.
Commission's Recommendation on the tax treatment of personal pension products, including the PEPP
The Commission encourages Member States to grant the same tax treatment to PEPP as is currently granted to similar existing national products, even if the PEPP does not fully match the national criteria for tax relief.
Member States are also invited to exchange best practices on the taxation of their current personal pension products which should foster convergence of tax regimes.
Along with the PEPP Regulation, in April 2019 the European Parliament adopted a Resolution on tax treatment of pension products, including the PEPP. The EP calls on the Council to elaborate proposals regarding incentives for PEPP savers with a view to enhancing the uptake of the PEPP. Parliament suggests that the following approaches be considered:
- analysing existing tax incentives for personal pension products and assessing their costs, effectiveness and redistributive effects, and, where applicable, addressing inefficiencies and regressive effects;
- granting the same tax relief to PEPP as that granted to national personal pension products, even in cases where PEPP features do not fully match all the national criteria;
- granting specific tax relief to PEPP, harmonised at Union level, to be laid down in a multilateral tax agreement between Member States.
The EP does recognise that tax is a Member State competence, but also recalls that Member States have the opportunity to take part in enhanced cooperation.
The Council of the EU still has to formally adopt the trilogue agreement, after which the Regulation will be published in the Official Journal of the EU and will enter into force 20 days after publication. Over the coming months, EIOPA will prepare the level 2 measures (delegated and implementing acts), amongst others specifying the types of costs and fees that will be capped for the Basic PEPP.The Regulation will apply 12 months after the publication of the delegated acts in the Official Journal.
According to the Commission, the first PEPPs are expected to come on the market soon after the date of application of the Regulation, i.e. mid- or end 2021.
“With PEPP in place, we estimate that the European market for personal pension products could triple in size by 2030. This is roughly from €700 billion now to €2.1 trillion in 2030. And this is twice the growth that is expected to take place without PEPP.”
(Commission’s Vice-President Valdis Dombrovskis speech: “Impact of PEPP on EU Capital Markets and Sustainable Pensions Income” at the Nordic-Baltic Conference on 23 April 2019)