Pan-European Personal Pension Products (PEPP)

Pan-European Personal Pension Products (PEPP)

The aim of this article is not to provide you with the most up-to-date information on the subject but to give you a general insight in the subject and its importance for the sector.

Background

In June 2017, the European Commission published a proposal for Regulation on a Pan-European Personal Pension Product (PEPP). It was adopted and published early 2019. Work on level II is now on its way. The Regulation will apply (directly) 12 months after publication of the level II. 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 initiatives are part of the bigger framework of the Capital Markets Union.

Regulation on PEPP

The Regulation on a Pan-European Personal Pension Product (“PEPP”) deals with the registration, manufacturing, distribution and supervision of PEPP. It was adopted and published in the Official Journal of the EU in July 2019. It is directly applicable and will start to apply in March 2022. BIPAR and its member associations have been very active on this file all along the legislative process.

The PEPP is 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.

PEPP can be distributed by insurance intermediaries under IDD and investment firms providing advice under MiFID II. All PEPP providers have to offer “Basic PEPPs”, which are “simple and affordable default investment options” that have to provide capital protection and where costs and fees shall not exceed 1 % of the accumulated capital per year.

The Regulation foresees mandatory advice (with suitability test) and a demand and needs test for PEPP providers and distributors, for all PEPPs, including Basic PEPPs.

Cost cap in Level II

Following EIOPA technical advice (delivered in August 2020 and on which BIPAR had provided input), the European Commission adopted level 2 rules that specify, amongst others, the types of costs and fees that will be capped for the Basic PEPP. It took an all-inclusive approach including (initial) advice costs in the costs and charges to be included within the 1% cap for the Basic PEPP. Costs incurred by providers for the initial advice can be amortised in the cost cap. BIPAR did not support such inclusion of advice costs in the cap - and does not support cost caps in general.

The Level 2 texts were left unchanged by the Parliament and Council and published on 22 March 2021 in the Official Journal. The PEPP Regulation will apply in 1 years’ time from this publication.

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