Good morning everyone,
Today we are proposing to lay the foundations for a single European private pensions market. We are presenting a new voluntary scheme to save for retirement, a Pan-European Personal Pensions Product, or PEPP. This product would benefit savers around Europe by complementing existing national pension products.
Let me first say a few words about the reasoning behind this proposal.
Europe is facing an unprecedented demographic challenge. In 2060, for every retired person there will only be two people of working age, compared to four today. Our social and welfare systems are already coming under pressure. That's why we urgently need to bridge the pensions gap created by our ageing population.
Alongside occupational pensions, personal pension plans are part of the solution to supplement state-based pensions. But today they are underused: only 27% of Europeans between 25 and 59 years of age save towards a private pension.
This is linked to the underdevelopment of the personal pensions market. In many Member States, supply is limited, and savers often face limited competition, hidden fees and expensive or no switching between providers. For those providers wishing to develop EU-wide products, a patchwork of rules stands in the way.
Today's proposal aims to address this situation by contributing to a European market for personal pensions.
So what is PEPP?
PEPP would be a tool for businesses to offer high-quality personal pensions to savers across the EU based on a single standard. PEPP will have several features inspired by existing pension products:
For example, PEPP will be a simple product for savers, with only up to 5 investment strategies.
It will include a default, low-risk investment option, and strong rules on risk mitigation.
It will cap the costs of switching from one provider to another.
It will be a transparent product, with mandatory information on fees and the performance of the investment.
And it will be flexible, offering the possibility to change investment strategy every 5 years and choosing how benefits are paid out.
All these features will be harmonised at EU level, and providers will only need one product authorisation to offer a PEPP across the EU. This highlights two further advantages of PEPP:
First, PEPP would be portable. This means that savers would be able to move their pension plan across national borders without switching provider. Many stand to benefit from this, such as mobile workers, students studying for a degree in another EU country, and those wanting to retire abroad.
And second, we expect PEPP to achieve economies of scale and lower costs, which would make it an affordable product.
In many countries, tax incentives are a key driver for the take-up of personal pension products. This is why today we are also tabling a recommendation for Member States to grant the same tax treatment to the PEPP as to largely comparable national pension products. We also invite Member States to exchange best practices on the taxation of personal pensions, to promote a more consistent approach in the EU.
The success of the new Pan-European Personal Pension Product is in our joint interest. Our economy needs more investment.
By creating such an attractive long-term investment product, we are hitting two targets: we're putting savings to long-term productive use, and we're providing future pensioners with critical revenue during their old age.