Pan European Pension Funds

Currently, there is a dynamic and ongoing improvement in life expectancies that is not accounted for in pension systems designed to provide financial security in retirement.All over Europe, there are currently employment-based (2nd pillar) pension funds and first pillar pay-as-you-go (PAYG) state pensions systems that are facing huge funding deficits as a result of that. Recently both the EU parliament and the EU Council took their stance on the introduction of an European legal framework for Pan-European Personal Pensions (“PEPP”) an “European 401(k) account” that may prospectively be provided by, amongst others, banks, fund managers, and insurance companies. The introduction of the PEPP could potentially be a solution to mitigate the growing challenge of this so-called “pension gap”, i.e. the gap in savings most people have to ensure they have a good standard of living in retirement.Over the next months the EU parliament and EU Council will be exchanging on how to combine their perspectives in view of a final vote for the introduction of a Pan-European Pension Product Regulation (“PEPPR”).In anticipating a final vote, this contribution discusses the huge opportunity that the introduction of a PEPPR offers to the Luxembourg fund industry. For that purpose, this contribution first provides an overview of the PEPP as a “wrapper (Fund) product”.This article then discusses the PEPP (product) passport and the PEPPR governance provisions (intermediary, product and sales regulation) applicable to PEPP providers, distributors and depositaries. It continues by discussing the opportunities for the Luxembourg fund industry and then concludes.

The competitive pressures arising from European economic integration increasingly challenge the territorial sovereignty of national welfare states. This generates the need to situate domestic social security schemes amid the European Union's national and supranational as well as economic and social spaces. At the transnational level, the European Commission's 2003 Institutions for Occupational Retirement Provision (IORP) Directive created the illusion that a single market for occupational pensions would shortly be within reach. This did not happen, however, as IORPs being at one and the same time financial vehicles and social insurance institutions embody the constitutional asymmetry between policies promoting market efficiency and policies promoting social protection. Whereas the elimination of financial and tax barriers has proceeded smoothly, harmonization of the social and labour components within the occupational pension domain did not occur, slowing down the development of pan-European pension plans. Nonetheless the road towards a single occupational pension market is still open, with first positive results emerging from the greater involvement of corporate and supranational actors.

In June 2017, the European Commission proposed a framework for a pan-European pension product (PEPP) designed to give EU citizens a new option for good value and safe voluntary supplementary pension saving. This could support pension adequacy and at the same time provide another source of long-term investment funds and so help to meet the objectives of the capital markets union (CMU). Together with a proposal for a regulation for a pan-European personal pension product, the Commission also presented a recommendation to encourage Member States to grant the same tax treatment to PEPPs as they grant to similar existing national personal pension products. On 11 January 2018, the Conference of Presidents of the European Parliament authorised its Committee on Economic and Monetary Affairs (ECON) to draft a legislative own-initiative report on the 'Tax treatment of pension products, including the pan-European personal pension product 2018/2002(INL)', to be prepared by the rapporteur Sophia in 't Veld (ALDE, the Netherlands) – see the proposal for a motion for a resolution in Annex 1. All legislative own-initiative reports are automatically accompanied by a European added value assessment (EAVA). The purpose of an EAVA is to support a European Parliament legislative initiative by providing an assessment of the potential added value of taking action at EU level. Two European Parliament draft reports have been prepared as part of the process leading to a decision regarding the European Commission PEPP proposal and PEPP recommendation. The first draft report covers the PEPP proposal and the second the PEPP recommendation. This EAVA analyses both the PEPP proposal and the recommendation and provides information in support of the committee’s draft report on the Commission's PEPP recommendation. There exists clear evidence for the European added value to be achieved through the PEPP. As the PEPP facilitates cross-border mobility by providing a simpler pension product for people who have worked or who plan to work in several Member States, it would contribute to the free movement of people. An economic dimension derives from the fact that supranational operations deliver greater benefits to Members States (increased voluntary pension savings), savers (better and cheaper products, larger variety of products) and service providers (larger customer base, simplified legislation, fewer cross-border transaction costs).

This edited volume takes a closer look at various European pension-plan models and the recent challenges, trends and predictions related to the design of such schemes. The contributors analyse new ideas, both from national governments and European institutions, and consider current debates on topics such as the Capital Markets Union (CMU) and the so-called ‘European Pillar of Social Rights’ – calling for a new approach to social policy at the European level in response to common challenges, such as ageing and the digital revolution.This interdisciplinary work embraces economic, financial and legal perspectives, while focusing on previously selected coherence aspects in order to ensure that the analyses are comprehensive and globally consistent.

"In 2009 the European Commission commissioned a feasibility study of a pan-European pension fund that could match the needs of researchers in the European Union (EU) and the European Economic Area (EEA). The study was carried out by Hewitt Associates on behalf of the Directorate-General for Research and Innovation (DG RTD) over the period June 2009 - April 2010. Within this project, Hewitt Associates examined the legal, technical and financial terms and requirements that should be considered to set up a viable pan-European framework for occupational pension arrangements for researchers. The report found that there is a demand for a cross-border pension fund for EU/EEA based researchers, and that it is possible in principle to establish such an arrangement. Based upon the outcome of the feasibility study the European Commission launched a project in 2011 to monitor the implementation of a pan-European Pension Fund. The aim of the three year project was to support employers willing to prepare and establish such a fund."--Editor.

In July 2012, the European Commission asked the European Insurance and Occupational Pensions Authority ('EIOPA'), in the broader context of efforts to develop private funded pensions, to advise on a legal framework for a Single Market for PPPs. Following a Discussion Paper, a Preliminary Report, a draft advice and a Final Report published by EIOPA, Regulation (EU) 2019/1238 ('PEPPR') was adopted on 20 June 2019. The PEPPR establishes a 2nd regime (also known as the 29th regime) that serves as an alternative uniform European system to different national regimes allowing private parties (providers and PPP holders) to choose whether the European or a national regime governs their legal relationship.The PEPPR, that introduced a European (product) passport for Pan-European Pension Products ('PEPPs'), is in line with the advice in the 2011 White Paper on Pensions that addresses enhancement of the development of private retirement savings in realizing efficiency gains through diversification, innovation and scales of economies on the side of pension providers. Apart from that, the introduction of the European product passport for PPPs might help to overcome the 'financing gap' for small and medium-sized enterprises ('SMEs').Developing complementary personal retirement savings is seen as a regulatory tool to develop third-pillar pension systems in EEA Member States where occupational pensions are not well-developed. The PEPPR seeks to create a regulatory framework for personal pensions that could play a role in securing pensions, reducing the burden on public pension schemes and increasing pension income. It serves as an answer to overcome the pressure being put by the low interest rates on funded schemes. Furthermore, the PEPPR has as an additional objective to diminish the obstacles to labour mobility and adapt to the general shift from defined benefit ('DB') to defined contribution ('DC') schemes. The PEPPR, thus, plays a major role in overcoming the 'pensions gap'. This contribution discusses PEPPs as a 'wrapper product'. Furthermore, this contribution explains the common regulatory framework for PEPPs in harmonizing regulation applying to PEPP providers/distributors, depositaries/custodians, the position of PEPP customers, the standardization of PEPP 'product regulation' and sales regulation. It concludes by explaining that the PEPPR establishes a 'wrapper product' investment triangle that is, depending upon the PEPP contract employed, based upon the underlying investment triangle under Directive 2011/61/EU ('AIFMD'), Directive 2009/65/EC ('UCITSD') or the (optional) investment triangle under Directive (EU) 2016/2341 ('IORPD II').

EIOPA has recently proposed to introduce standardized pan European personal pension products (PEPPs) that would be available in the accumulation phase, jointly with national personal pension plans. This paper analyzes the PEPPs from the perspective of the academic literature and proposes to use the PPR concept of Bovenberg and Nijman (2015) to categorize product characteristics, both in the accumulation phase as in the decumulation phase. The PPR concept can also be used to incorporate design features of the decumulation phase in the PEPP itself. A first important lesson to be learned from the academic literature is that the aim of stable income provision requires a framework where future asset returns are hedged rather than the asset only approach underlying the PEPPs. Whereas EIOPA proposes to allow switching between PEPPs only infrequently, the literature suggests that liquidity concerns are not a very convincing reason to restrict switching. Switching costs could be linked to the degree of liquidity of the portfolio. A better motivation for restriction on switching seems to be that investors might well put too much focus on recent investment performance as a predictor of future performance. As far as information disclosure is concerned more attention is recommended to the impact of biometric risks. More attention is also recommended for tax issues, because current tax provisions for national PPPs seem to be rooted in characteristics of the decumulation phase that can be avoided in the second regime. The paper concludes with a discussion of the potential impact of the PEPP proposal on PPP provision in four European countries.

Faced with ageing populations, most EU Member States have taken measures to reform their public pension systems with a view to preserving the sustainability of their public finances. Although considerable progress has been made, many Member States will need to do more still given the long-term trends they are facing. In simple terms, the choice boils down to accepting either a further increase in retirement ages or reduced levels of public pension schemes’ provision. In the latter case, voluntary private pension products can play a central role in helping pensioners to maintain an adequate level of income. However, too many Europeans are still channelling their savings into bank deposits rather than supplementary pension schemes, despite lower returns. This situation, which leads to an under-supply of long-term capital for investing in productive activities necessary to support sustainable economic growth, results from a number of supply and demand-side constraints that could be addressed through the creation of an effective European internal market for voluntary private pension products. This would both help pensioners to maximise their savings, while also supporting the long-term growth of the economy.

This book explains the demographic and funding crises that threaten continental European systems of pension and retirement income. Based upon examination of pension provision in France, Germany, The Netherlands and the United Kingdom, the book argues that state-sponsored social security will not deliver promised retirement incomes for the baby-boom generation. The author considers the future of pensions and in particular the prospects for a Pan-European approach to retirement income provision.