COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a pan-European Personal Pension Product (PEPP) and COMMISSION RECOMMENDATION on the tax treatment of personal pension products, including the pan-European Personal Pension Product
Date: 2017-06-29
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU Member State, capital market, consumer information, investment company, investment promotion, regulation of investments, single market, supplementary pension

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 29.6.2017  SWD(2017) 243 final   COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a pan-European Personal Pension Product (PEPP)  and   COMMISSION RECOMMENDATION   on the tax treatment of personal pension products, including the pan-European Personal Pension Product  {COM(2017) 343 final} {SWD(2017) 244 final}  
 
 
Table of contents 

1. 

INTRODUCTION AND POLICY CONTEXT .......................................................... 4 

2.  PROBLEM DEFINITION .......................................................................................... 9 

2.1.  Underdeveloped capital markets in the Capital Markets Union context ........... 9 
Insufficient features in the area of personal pension products ........................ 13 
2.2. 
2.2.1.  Personal pension product features ..................................................... 13 
2.2.2. 
Insufficiently diverse supply of PPPs ................................................ 19 
Incomplete internal market for personal pension products ............................. 20 
Insufficient degree of cross-border provision and portability ........... 20 
2.3.1. 
2.3.2.  Diverging legal requirements ............................................................ 22 
2.4.  Other factors out of scope of this impact assessment ...................................... 24 

2.3. 

3.  OBJECTIVES ........................................................................................................... 27 

3.1.  General and specific objectives ....................................................................... 27 
3.2.  Consistency of the objectives with other EU policies ..................................... 27 
3.3.  Consistency of the objectives with fundamental rights ................................... 28 
3.4.  Subsidiarity ...................................................................................................... 28 

3.4.1.  The  objectives  of  the  proposed  action  cannot  be  sufficiently 

achieved by the Member States ......................................................... 28 

3.4.2.  The  objectives  of  the  proposed  action,  by  reason  of  its  scale  and 

effects, can be better achieved at EU level ........................................ 29 

4.  POLICY OPTIONS AND ANALYSIS OF IMPACTS ............................................ 31 

4.1.  General policy options .................................................................................... 31 
4.1.1.  Baseline scenario ............................................................................... 32 
4.1.2.  Pan-European personal pension product ........................................... 32 
4.1.3.  Harmonisation of national regimes ................................................... 36 
4.2.  Key features of a regulatory statute establishing a PEPP ................................ 38 
4.2.1.  Distribution rules ............................................................................... 40 
4.2.2. 
Investment policy .............................................................................. 42 
4.2.3.  Rules on switching providers ............................................................ 45 
4.2.4.  Cross-border provision and portability.............................................. 46 
4.2.5.  Decumulation .................................................................................... 49 
4.2.6.  Summary of the recommended PEPP key features – how would a 

PEPP function in practice ? ............................................................... 51 
4.2.7.  Tax treatment based on the recommended PEPP key features ......... 55 

5.  OVERALL IMPACTS .............................................................................................. 59 

5.1.  Overall impact of the preferred option ............................................................ 59 
5.2.  Macro-economic impacts ................................................................................ 60 
5.3.  Small and medium-sized enterprises ............................................................... 64 
5.4.  Administrative burden ..................................................................................... 65 
5.5.  EU budget ........................................................................................................ 65 

2 

 
 
5.6.  Social impacts ................................................................................................. 65 
Impact on third countries ................................................................................. 65 
5.7. 
5.8.  Environmental impacts .................................................................................... 65 

6.  MONITORING AND EVALUATION .................................................................... 66 

ANNEX  1  –  PROCEDURAL  STEPS  CONCERNING  THE  PROCESS  TO 
PREPARE  THE  IMPACT  ASSESSMENT  REPORT  AND  THE  RELATED 
INITIATIVE .............................................................................................................. 68 

ANNEX 2 – STAKEHOLDER CONSULTATIONS ....................................................... 69 

1. SYNOPSIS OF CONSULTATIVE WORK ................................................................. 69 

2.  DESCRIPTION  OF  THE  PUBLIC  CONSULTATION  ON  PERSONAL 

PENSIONS  (JULY-OCTOBER 2016) .................................................................... 71 

ANNEX 3 – WHO IS AFFECTED BY THE INITIATIVE AND HOW ......................... 81 

ANNEX  4  –  ANALYTICAL  MODELS  USED  IN  PREPARING  THE  IMPACT 

ASSESSMENT ......................................................................................................... 82 

ANNEX 5: GLOSSARY AND LIST OF ABBREVIATIONS USED ............................. 92 

ANNEX 6 - MARKET DESCRIPTION OF PERSONAL PENSIONS ........................... 97 

ANNEX  7  –  SYNTHESIS  OF  POLICY  OPTIONS  FOR  THE  PEPP  FEATURES 

(KEY AND OTHER FEATURES) ......................................................................... 101 

ANNEX  8  –  DISTRIBUTION:  DESCRIPTION  OF  POSSIBLE  ADD-ON 

PROVISIONS ......................................................................................................... 106 

ANNEX 9 - COST OF SWITCHING AND ADVICE ................................................... 109 

ANNEX  10  -  LIST  OF  OTHER  FEATURES  THAT  COULD  BE  PART  OF  A 

REGULATORY STATUTE ESTABLISHING A PEPP ....................................... 114 

3 

 
 
 
 
 
1. 

INTRODUCTION AND POLICY CONTEXT 

The  case  for  an  EU  personal  pension  initiative  must  be  assessed  in  the  broader  context  of 
efforts to build a Capital Markets Union (CMU). The CMU is part of the third pillar of the 
Commission’s Investment Plan for Europe and is key to delivering the Juncker Commission's 
priority  to  boost  jobs  and  growth.  The  CMU  seeks  to  facilitate  the  flow  of  savings  to 
investment  and  removing  obstacles  to  the  free  flow  of  capital  across  borders.  This  would 
strengthen  the  European  financial  system  by  enhancing  private  risk-sharing,  providing 
alternative sources of financing and increasing options for retail and institutional investors. A 
stronger capital market as a result of the CMU is in turn expected to provide individuals with 
better  options  to  meet  their  retirement  goals,  delivering  better  outcomes  for  savers  and 
providers alike.  

In  its  Action  Plan  on  Building  a  Capital  Markets  Union1,  the  Commission  observed  that  no 
effective single market for 'third pillar' personal pensions exists. A patchwork of rules at EU 
and  national  levels  stands  in  the  way  of  the  full  development  of  a  large  and  competitive 
market for personal pensions. Market fragmentation prevents personal pension providers from 
maximising economies of scale, risk diversification and innovation, thereby reducing choice 
and increasing cost for pension savers. In addition, existing personal pension products display 
in  some  cases  insufficient  product  features.  Finally,  cross-border  selling  and  portability  of 
existing personal pensions are very limited.  

For  the  purpose  of  this  impact  assessment,  personal  pension  products  (PPPs)  are  defined  as 
retirement financial products which: 

  are  based  on  a  contract  between  an  individual  saver  and  a  non-state  entity  on  a 

voluntary basis, with an explicit retirement objective; 

  provide for capital accumulation until retirement, and where the possibilities for early 

withdrawal are limited,  

  provide an income on retirement. 

PPPs  should  complement  state-based  pensions  and,  where  they  exist,  occupational  pensions 
stemming from employment relationships. Public and occupational pensions are not covered 
by the scope of this initiative (see the Box below).  

Box 1 – State-based, occupational and personal pensions and some examples of personal 
pensions 
As explained in  the 2014 "Pension Scheme" study for the EMPL Committee commissioned 
by the European Parliament2, a detailed comparison of pension systems across Member States 
is  a  difficult  task.  All  Member  States  have  set  up  pension  systems  whereby  workers  are 
assured  of  a  certain  level  of  income  upon  their  retirement,  and  the  design  of  the  pension 
system remains a national prerogative. The elements of the pension system are: 

- a first pillar consisting of "state-based pensions", which are part of a public statutory social 
security system (mostly financed through taxes or social contributions, therefore classified as 
pay-as-you-go  systems) 

1   
2        

COM(2015) 468 final. 
Study on Pension Schemes, study for the EMPL Committee, 2014, available at:   

http://www.europarl.europa.eu/RegData/etudes/STUD/2014/536281/IPOL_STU(2014)536281_EN.pdf  

4 

 
 
 
 
 
 
                                                 
-  a  second  pillar  consisting  of  "occupational  pensions"  or  "second  pillar  pensions"  i.e. 
financial institutions which manage collective retirement schemes for employers, in order to 
provide retirement benefits to their employees (the scheme members and beneficiaries) 3; 
-  a  third  pillar  consisting  of  "personal  pensions",  "PPPs"  as  in  the  impact  assessment  or 
"third pillar pensions" i.e. non-compulsory private pension savings by individuals; 

There is no agreed unique taxonomy of pension systems, and organisations such as the World 
Bank,  EIOPA,  or  the  OECD  isolate  more  specific  features  beyond  the  broad  definitions 
provided above.  Moreover,  as  the  terms  second  and  third  pillars  have  different  meanings  in 
Member  States  depending  on  the  design  of  their  national  pension  systems  (e.g.  in  some 
Member States, "second pillar" denotes statutory funded pensions, while occupational pension 
schemes are considered part of the "third pillar") throughout the report we will use the terms 
"occupational" and "personal" pensions instead of pillars. 

EIOPA  advice  provides  an  indication  of  the  specific  features  of  PPPs  and  differences  with 
other types of investment products:  

• 
• 

• 

• 

• 

The specific aim of PPPs is to provide an income to PPP savers after retirement; 
PPPs  provide  capital  accumulation  from  the  mid  to  long  term  until  the  (expected) 
retirement age and may also cover biometric risks; 
During the accumulation phase premiums and contributions are deferred to a private 
entity, the PPP provider; 
During the accumulation phase the possibility for early withdrawal of the accumulated 
capital is limited and often sanctioned; 
National legislation could sometimes restrict the ways in which the accumulated PPP 
capital  can  be  used  upon  retirement  (e.g.  (lifelong)  annuitisation,  programmed 
withdrawal, (partial) lump sums). 

From an economic point of view, investments in (long duration and safe) government bonds 
and real estate could be considered as substitute products. However, notwithstanding the risks 
stemming from potential property market crisis, PPPs provide the advantages of divisibility4 , 
i.e. the possibility to invest small amounts on a regular basis and portfolio diversification.  

Examples of current PPPs include:  

- the Pension savings plan in Belgium ("Pensioensparen"), mainly sold by banks and insurers, 
which offers an investment option between savings funds (aggressive, defensive or balanced 
strategy) and a guaranteed interest product. Decumulation must normally start after 60 years. 
This plan is subject to a tax relief of 30% of the contribution, up to a limit of contribution of 
EUR 940 per year (in 2016).  

3   Occupational and personal pensions are generally referred to as "second pillar" and "third pillar" pensions, 
respectively,  however  the  actual  meaning  of  those  terms  varies  depending  on  the  design  of  the  national 
pension  system  (in  some  Member  States,  "second  pillar"  denotes  statutory  funded  pensions,  while 
occupational pension schemes are considered part of the "third pillar"). Therefore, this report uses the terms 
"occupational" and "personal" pensions. Together they are known as "supplementary pensions". 

4   Divisibility  refers  to  the  smallest  denomination  in  which  an  asset  is  traded.  For  example  a  bank  savings 
deposit account in which an investor can invest as little as one euro cent, is a perfectly divisible security in 
contrast to corporate or government investments where minimum investment amounts can be very large. 

5 

 
 
 
 
 
 
 
 
 
 
 
                                                 
- the Riester Rente in Germany, mainly sold by banks, brokers and insurers, including online. 
Investment options include more aggressive strategies (e.g. fund-linked pension insurance), or 
more defensive ones (e.g. bank saving plans). Decumulation must start after age 62. This plan 
is subject to a tax relief on contributions with a maximum amount of 2100 EUR per year. 

As announced in the Action Plan on Capital Markets Union in September 20155, "an 'opt in' 
European  Personal  Pension  could  provide  a  regulatory  template,  based  on  an  appropriate 
level of consumer protection, that pension providers could elect to use when offering products 
across the EU. A larger, 'third pillar' European pension market would also support the supply 
of funds for institutional investors and investment into the real economy". Consequently, the 
Commission  announced  that  it  will  "assess  the  case  for  a  policy  framework  to  establish  a 
successful  European  market  for  simple,  efficient  and  competitive  personal  pensions,  and 
determine whether EU legislation is required to underpin this market".    

In its Resolution of 19 January 2016, the European Parliament expressed concern6 about the 
lack of available and attractive risk-appropriate (long-term) investments and cost-efficient and 
suitable savings products for consumers. Whilst reiterating the need for diversity in investor 
and  consumer  choices,  the  European  Parliament  stressed  that  "an  environment  must  be 
fostered that stimulates financial product innovation, creating more diversity and benefits for 
the  real  economy  and  providing  enhanced  incentives  for  investments,  and  that  may  also 
contribute  to  the  delivery  of  adequate,  safe  and  sustainable  pensions, such  as,  for  example, 
the  development  of  a  Pan-European  Pension  Product  (PEPP),with  a  simple  transparent 
design". 

In  June  2016,  the  European  Council  adopted  an  agenda  calling  for  "swift  and  determined 
progress to ensure easier access to finance for business and to support investment in the real 
economy by moving forward with the Capital Markets Union agenda"7. 

In September 2016, in its Communication on Capital Markets Union – Accelerating Reform8, 
in light of the strong support expressed by the European Parliament, Council and stakeholders 
to  the  CMU  Action  Plan,  the  Commission  announced  as  a  next  step  developing  further 
priorities, that it will "consider proposals for a simple, efficient and competitive EU personal 
pension product".  

Consequently, in its Communication on the Mid-Term Review of the Capital Markets Union 
Action Plan, the Commission announced "a legislative proposal on a Pan-European Personal 
Pension  Product  (PEPP)  by  end  June  2017.  This  will  lay  the  foundations  for  a  successful 
market in affordable and voluntary retirement-related investments that can be managed on a 
pan-European  scale.  It  will  meet  the  needs  of  people  wishing  to  provision  for  retirement, 
address  the  demographical  challenge,  complement  the  existing  pension  products  and 
schemes, and provide a powerful new source of private capital for long-term investment"9. 

5   COM(2015) 468 final. 
6   European  Parliament,  Resolution  of  19  January  2016  on  stocktaking  and  challenges  of  the  EU  Financial 
Services Regulation: impact and the way forward towards a more efficient and effective EU framework for 
Financial 
Union, 
a 
http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P8-TA-2016-0006&language=EN  

Regulation 

Markets 

Capital 

and 

7   European Council Conclusions of 28 June 2016, EUCO 26/16, point11. 
8      COM (2016) 601 final, p. 4. 
9   COM(2017) 292 final, p. 6. 

6 

 
 
 
                                                 
Accordingly, this impact assessment10 aims to support the process of taking a well-informed 
decision on the legislative initiative on a PEPP.  

In  this  regard,  a  PEPP  framework  would  entail  a  complementary  voluntary  regime  beside 
national regimes, allowing providers to create personal pension products on a pan-European 
scale.  

A  PEPP  framework  would  contribute  to  progress  towards  a  single  market  for  personal 
pensions, by harmonising a set of core product features and facilitating cross-border activity.  

The  PEPP  framework  would  bring  value  added  as  compared  to  existing  PPPs,  building  on 
existing  best  practices  complemented  by  specific  features  conferring  it  a  pan-european 
dimension. First, the PEPP could be offered by a wider range of providers then existing PPPs, 
including not only insurance companies (currently the major players in personal pensions) but 
also  investment  firms  and  asset  managers,  as  well  as  specialised  pension  funds  (currently 
more focussed on occupational pensions). It would be authorised by the European Insurance 
and Occupational Pensions Authority (EIOPA), on the basis of a single set of rules and once 
authorised could be marketed across the European Union. 
PEPP providers would follow specific rules on distribution ensuring adequate information and 
checks.  

The  PEPP  would  be  a  simple  product,  with  a  limited  set  of  investment  options.  It  would 
include the right  to  switch  provider  and  the  possibility to  continue  contributing  to  the  same 
product  when  exercising  mobility  across  the  European  Union.  The  PEPP  framework  would 
provide a safe default investment option. It would be innovative – distributed on an electronic 
basis  –  and  transparent,  with  appropriate  disclosure  of  all  costs  and  fees.  Prospective  PEPP 
savers would receive appropriate information via a PEPP Key Information Document before 
the conclusion of the contract, as well as information on their pension benefits during the term 
of the contract. 

Subject to the effective development of PEPPs, the PEPP framework could mobilise over time 
some  additional  households'  savings  e.g.  from  deposits  towards  investments  on  capital 
markets. Even if the development of a PEPP would be progressive and additional investments 
on capital markets limited, as a long-term savings product, matched by long-term investments, 
the PEPP framework could contribute to the objectives of CMU.  

Against  this  background,  the  Commission  has  organised  a  public  consultation  (including  a 
public hearing) on EU personal pensions and received 585 contributions from a broad range 
of stakeholders (see a synopsis of the consultative work and a detailed analysis of the public 
consultation, in Annex 2). The responses showed a strong interest from private individuals in 
simple, transparent and cost-effective PPPs. The public consultation also requested feedback 
from professionals on the feasibility of an EU personal pension framework including a PEPP. 
As  national  tax  incentives  are  an  important  driver  for  the  take-up  of  personal  pension 
products,  the  Commission  has  commissioned  a  study  on  a  European  Personal  Pension 
Framework  (the  "EPPF  Study"  hereafter)11  in  order  to  map  the  national  tax  and  other  legal 
requirements  applicable  to  personal  pensions  on  the  basis  of  a  set  of  personal  pension 

10   See Annex 1 for the procedural information concerning the process to prepare the Impact Assessment report 

and related initiative.  

11  FISMA/2015/146(2)/D4/ST/OP - Study on European Personal Pension Framework, by Ernst and Young. 

7 

 
 
 
 
 
                                                 
products,  evaluate  the  market  potential  for  personal  pensions  across  the  EU  and  assess  the 
feasibility for stakeholders to implement an EU personal pension framework12. 

This  impact  assessment  builds  inter  alia  on  substantial  technical  advice  from  the  European 
Insurance  and  Occupational  Pensions  Authority  (EIOPA)13  on  the  development  of  an  EU 
single  market  for  personal  pension  products  ("EIOPA  technical  advice"  hereafter).  This 
advice  itself  builds  on  an  earlier  preliminary  report  of  EIOPA,  entitled  "Towards  a  single 
market for personal pensions"14. The selected policy options in this impact assessment are in 
line  with  the  EIOPA  technical  advice  on  the  key  issues,  particularly  the  choice  of  a  PEPP 
against  other  general  policy  options  (section  4.1),  and  the  determination  of  key  features 
(section 4.2). 

This impact assessment also builds on the work carried out by the OECD in the area of private 
pensions. First, the work on tax treatment of personal pensions products, namely the OECD 
study on "Stocktaking of the Tax Treatment of Funded Private Pension Plans in OECD and 
EU  countries"15and  the  Commission-OECD  project  on  Taxation,  Financial  Incentives  and 
Retirement Savings16. Second, the impact assessment takes guidance from the OECD Study 
"Core  Principles  of  Private  Pension  Regulation"17  on  the  design  and  operation  of  private 
pension systems. Finally, the impact assessment also takes into consideration the Oxera Study 
on the position of savers in private pension products across fourteen Member States18. 

Based on these various inputs, the next section presents the main problems and shortcomings 
of the personal pensions market. 

12   The draft final report is expected in May, and the final report in June 2017. 
13   EIOPA's advice on the development of an EU Single Market for personal pensions products (PPP), July 

2016, available at: 
https://eiopa.europa.eu/Publications/Consultations/EIOPA%27s%20advice%20on%20the%20development%
20of%20an%20EU%20single%20market%20for%20personal%20pension%20products.pdf      

14   EIOPA, Towards an EU single market for personal pensions, 2014, available at:  

https://eiopa.europa.eu/Publications/Reports/EIOPA-BoS-14-
029_Towards_an_EU_single_market_for_Personal_Pensions-
_An_EIOPA_Preliminary_Report_to_COM.pdf. 

15      OECD  study  on  "Stocktaking  of  the  Tax  Treatment  of  Funded  Private  Pension  Plans  in  OECD  and  EU  
countries", available at http://www.oecd.org/pensions/Stocktaking-Tax-Treatment-Pensions-OECD-EU.pdf  

16   Available at: http://www.oecd.org/daf/fin/private-pensions/financial-incentives-retirement-savings.pdf .     
17   Available at:  
     http://www.oecd.org/daf/fin/private-pensions/Core-Principles-Private-Pension- Regulation.pdf  
18   http://www.oxera.com/Latest-Thinking/Publications/Reports/2013/Study-on-the-position-of-savers-in-

private-pension.aspx  

8 

 
 
 
 
 
                                                 
2.  PROBLEM DEFINITION  

The main problems identified in this impact assessment concern the following issues: (1) the 
fact that the further development of the Capital Markets Union (and long-term investments) 
is, together with other elements out of scope of this impact assessment, affected by the low 
level  of  personal  savings  in  retirement  products  by  households  (2)  insufficient  features  of 
personal pension products; (3) cross-border problems, including the lack of a genuine internal 
market for personal pensions products within the EU.  

2.1.  Underdeveloped capital markets in the Capital Markets Union context    

The personal pension market in the EU is currently under-developed, highly fragmented and 
with  low  cross-border  sales  (see  below  and  in  the  following  sections).  Together  with  many 
other elements outside the scope of this impact assessment, this affects the completion of the 
Capital  Market  Union which  aim  is,  inter  alia,  to  increase the  depth  and  liquidity  of  capital 
markets  and  their  efficiency,  ultimately  benefitting  investment  and  growth  in  the  EU.  More 
details about the economic benefits of developed capital markets can be found at the end of 
this section.  

The  EU  actions  in  order  to  complete  the  CMU  cover,  many  other  areas  beyond    personal 
pensions.  The  CMU  Action  Plan  sets  a  broad  policy  agenda  which  aims  to  put  in  place  a 
structural  reform  to  strengthen  European  capital  markets  and  reduce  the  dependency  of  the 
European economy on bank lending.  

Within  all  the  projects  covered  under  the  CMU  Action  Plan,  personal  pensions  (and  more 
broadly pension funds) play a role as major institutional investors on capital markets. In this 
context,  the  EU  is  lagging  behind  compared  to  other  advanced  economies:  as  shown  in  the 
table below the total investment assets by pension funds (as per OECD definition) in the EU 
is at around 30% of GDP compared to 79% in the US for example. 

Table 1: Total investment assets as per OECD definition of pension funds - Billions USD 

Source: OECD, IMF, own calculations 

The currently sub-optimal level of savings in personal pensions and the relatively high level 
of savings in the form of deposits reduce the potential investment flows by households into 
capital markets. As a matter of fact, households are the main providers of net funding in the 
economy  with,  as  of  December  2015,  almost  EUR  34  trillion  of  total  financial  assets  and  a 
saving rate of more than 10% of gross household disposable income in the EU, equivalent to 
EUR  1  trillion19  in  2015.  The  table  below  shows  the  amounts  for  the  main  financial  asset 
categories held by households at December 2015 in all Member States, ranked from the State 

19  

   EUR961 billion as the sum of four quarters in 2015 of "gross saving" defined by Eurostat as the  portion of 
gross disposable income that is not used for final consumption expenditure. 

9 

World20052015weightIncrease 2005/2015 as a % of GDP 2015GPD 2015IMFUnited States9,71114,25056%47%79%18,037Total EU27 (no Cyprus)3,1105,05820%63%31%16,307Japan1,3161,3275%1%30%4,382Canada6871,1965%74%77%1,553Switzerland4137933%92%118%671Rest of the world1,1412,93111%157%Total - World16,37825,554100%56%34%74,197 
 
 
 
                                                 
with the highest level of total financial assets over GDP to the lowest level (data taken from 
Eurostat).  The  last  column  instead  gives  an  estimation  of  personal  pension  assets  under 
management in the countries where data was available20. 

Table 2: Overview of Households Financial Assets and Personal Pension Market by 
Member State, EU 28 

Source: Eurostat and EPPF Study and own calculations. *The totals for the last two columns 
are for 24 Member States 

In terms of financial instruments, cash and deposits represent around 30% of the total with an 
amount of more than EUR10 trillion which is equivalent to almost 70% of the EU GDP. The 
amount  held  in  deposits  is  quite  lower (below  20%  of  total assets)  than the  EU  average  for 
three  Member  States  (Netherlands,  Denmark  and  Sweden)  as  the  life  insurance  and 
occupational pensions markets are quite developed. However, for twelve Member States the 
currency and deposits account for more than 40% of total financial assets; for seven of them 
the  level  is  higher  or  equal  than  50%  showing  a  low  level  of  diversification  of  households' 
financial portfolio.  

The higher propensity to prefer deposits over other financial products is more pronounced for 
households with lower financial assets. Table 2 shows that the total assets under management 
(AuM) of PPPs for which data was available are estimated at 578 billion EUR for 2014. This 

20   For Cyprus and Greece the current personal pension market is not developed. As per EIOPA Consultation 
paper  on  the  creation  of  a  PEPP,  the  assets  under  management  in  Luxembourg  and  the  United  Kingdom 
amounted  to  respectively  of  EUR0.5bl  (as  of  December  2011)  and  EUR237bl  (as  of  December  2010). 
However  the  definition  of  PPP  employed  by  EIOPA  is  less  stringent  as  it  includes  mandatory  retirement 
products and as such figures are not fully comparable. 

10 

Households Financial Assets(2015 except for PP Market 2014)Total financial assets(% GDP)Total financial assets (TFA)(EUR Billion)Currency & deposits(EUR Billion)Currency & deposits(% of TFA)Occupational pension entitlements(EUR Billion)Life insurance and annuity entitlements(EUR Billion)Personal Pension Market (EUR Billion)Personal Pension Market (% TFA)Netherlands325%2,19540919%1,3171399.70.4%United Kingdom324%8,2622,00624%4,024825No dataN/ABelgium309%1,26637329%8017943.43.4%Denmark294%79913317%17121678.89.9%Sweden281%1,28017914%37911211.00.9%Cyprus259%462963%42Low PPPN/AMalta257%241146%022.19.0%Italy251%4,1201,27331%25157437.20.9%France222%4,8411,37928%01,66549.91.0%Portugal212%38016844%22472.30.6%Spain187%2,00984842%16514983.54.2%Austria182%62025241%40738.11.3%Germany182%5,5032,15339%786920215.13.9%Greece148%25917266%36Low PPPN/AFinland144%3019030%242812.04.0%Luxembourg140%723650%29No dataN/AIreland139%35613237%116444.71.3%Bulgaria135%612338%510.20.3%Hungary124%1333828%563.52.6%Croatia121%532955%1020.30.7%Estonia113%23729%300.31.5%Czech Republic110%1869752%131011.46.2%Latvia108%26934%30.20.31.1%Slovenia102%392050%331.94.8%Poland97%40819548%37180.90.2%Lithuania92%341236%210.050.1%Slovakia77%613862%841.52.4%Romania72%1144035%610.20.2%Total228%33,47010,14930%7,4795,037578*2.3%* 
 
 
 
 
 
                                                 
represented less than 3% of European households’ financial assets. This can be considered as 
low, especially as compared to cash and deposits.   

According  to  the  EIOPA  technical  advice,  only  67  million  people,  out  of  a  total  EU 
population of 243 million between 25-59 years old (27% of the total) are currently voluntarily 
subscribed  to  financial  products  with  a  long-term  pension  objective.  These  are  concentrated 
primarily  in  a  few  markets  (Netherlands,  United  Kingdom,  Czech  Republic,  Belgium  and 
Spain)21.  

A recent survey carried out by the ECB22 in the euro-area Member States points out that the 
smallest financial asset portfolios consist almost exclusively of deposits (for example,  for the 
first  four  deciles  of  total  financial  assets,  deposits  account  for  more  than  80%  with  the 
remainder  consisting  mainly  of  life  insurance  policies/voluntary  pensions).  Savings  in  the 
form  of  other  financial  instruments  are  concentrated  among  wealthier  households:  the 
wealthier  the  household,  the  more  diversified  its  asset  portfolio,  and  the  more  educated  the 
household, the higher the share of other assets (e.g. for the top 10% of portfolios, voluntary 
pensions/life  insurance  products  account  for  25%,  and  risky  assets  for  26%).  Moreover,  the 
current  low  level  of  investments  and  participation  by  households  in  pension  products  has  a 
negative impact on the size and the diversity of participants in capital markets.  

The long-term nature of pension products  liabilities incentivises providers to invest  more in 
illiquid and long-term assets that yield higher returns. To the extent they invest in equity and 
corporate bond markets, they provide a long-term supply of funds to capital markets, and thus 
may contribute to their development.  

Taking the pensions funds' assets23 as proxy, empirical evidence shows that their size has an 
impact  on  the  development  of  capital  markets  especially on  the  stock  market  capitalization. 
Pension  funds  are  indeed  an  important  source  of  funding,  and  affect  the  amount  of  market 
financing available and the efficiency of financial intermediation. They provide an alternative 
savings vehicle for households and add to competition on the loan and securities markets. In 
so doing,  they spread  the gains of investments in  capital markets to  the broader population, 
facilitate asset diversification, and make the access to capital markets cheaper. Countries with 
an  important  pension  funds  sector  tend  to  have  larger  capital  markets24.  For  example,  after 
World War II many European countries rebuilt their pension system by establishing a pay-as-
you-go  system,  whereas  pension  funds  became  an  important  provider  of  funds  on  the  US 
capital market25. This led to significant differences in the amount of savings made available 
for  investment  in  financial  securities.  A  regression  analysis  performed  by  the  Commission 
services26 found that by increasing pension assets in the euro area and the EU by respectively 
73% and 60% of GDP (i.e. to the levels observed in the US around 90% of GDP), this would 
generate an additional stock market capitalisation of 31% and 26% in the euro area and EU 
respectively. 

21   EIOPA technical advice. 2014, EIOPA BoS Preliminary Report to the Commission. 
22   ECB  –  The  Household  Finance  and  Consumption  Survey:  Second  Wave  (December  2016). 

https://www.ecb.europa.eu/pub/pdf/scpsps/ecbsp18.en.pdf 

23   They  also  have  a  long-term  horizon  regarding  investments  with  debt  and  equity  representing  the  largest 

share in their investment allocation. 

24   See, for example, Rocholl and Niggemann (2010), Meng and Pfau (2010). 
25   For  example,  the  amount  of  investments  in  listed  and  unlisted  shares  of  US  insurance  companies  and 
pension funds stood at EUR 6 trillion as of end 2014, which was three times as much as the level of their 
European counterparts – see Europe's untapped capital market, Diego Valiante (2016), p. 79. 

26    EFSIR 2016 – European Commission. 

11 

 
 
                                                 
Moreover,  as  described  in  some  research  papers27  "even  in  the  case  that  pension  savings 
crowd out other household savings such that the total savings in the economy do not increase, 
the accumulation of pension fund assets is expected to potentially promote depth and liquidity 
in the capital markets because of the different investment behaviour between households and 
pension  funds.  Other  potential  impacts  from  the  growth  of  pension  funds  include  an 
inducement toward financial innovation, improvement in financial regulations and corporate 
governance,  modernization  in  the  infrastructure  of  securities  markets,  and  an  overall 
improvement in financial market efficiency and transparency". 

In conclusion, the insufficient provision of simple, cost-effective, transparent and trustworthy 
personal  pension  products  affects  the  development  of  non-bank  funding  alternatives  for 
companies and longer-term investment, as well as additional risk diversification opportunities 
for  households.  The  economic  benefits  of  capital  markets  28  are  multiple  and  can  be 
summarized as follows: 

  Deep,  liquid  and  efficient  capital  markets  bring  advantages  to  borrowers  and 
investors.  They  have  three  main  advantages  for  companies  seeking  finance:  (i) 
improve  their  access  to  funds;  (ii)  reduce  their  capital  costs  by  creating  competition 
among  investors;  and  (iii)  reduce  the  risk  of  disruption  in  financing  by  diversifying 
their  funding  sources.  On  the  investors'  side,  by  increasing  the  investment 
opportunities,  efficient  capital  markets  offer  investors  a  broader  set  of  financial 
products to (i) meet their investment objectives, (ii) diversify and manage their risks, 
and (iii) optimise their risk-return profile, while respecting their investment constraints 
–  whether  in  terms  of  risk,  duration,  or  other  assets'  characteristics.  Overall,  capital 
markets  (especially  equity  markets)  facilitate  entrepreneurial  and  other  risk-taking 
activities, which have a positive effect on economic growth. 

  Large  and  well-integrated  capital  markets  can  contribute  to  jobs  and  growth 
through a number of channels. They can contribute to allocative efficiency by opening 
up investment and diversification opportunities for investors across Europe, improving 
access  to  risk  capital  for  borrowers,  and  allowing  greater  competition  (unleashing 
corresponding  benefits  such  as  productivity  gains,  lower  costs,  greater  choice, 
financial  innovation,  etc.).  Portfolio  diversification  possibilities  should  also  be 
enhanced  because  the  larger  financial  markets  are  and  the  better  they  are  integrated 
across  borders,  the  more  opportunities  they  allow  to  share  risks  among  actors  and 
economies. 

  Moreover  the  optimal  financial  structure  shifts  towards  capital  markets  along 
with higher  levels of  economic development. Banks are particularly well-placed to 
serve economies at an early stage of development. They also have an uncontested role 
in certain market segments, for example to provide funding to firms that are too small 
to  tap  market  sources.  Capital  markets  take  longer  to  develop  because  they  require 
extensive  technical  and  legal  infrastructures  (e.g.  clearing,  settlement,  information 
provision).  Services  provided  by  financial  markets  become  comparatively  more 
important for higher-income Member States because, when economic and institutional 

27   See,  for  example,  "Pension  Funds,  Retirement-Income  Security  and  Capital  Markets,  an  International  
Perspective"  (Davis,  1995)  and  "The  Role  of  Pension  Funds  in  Capital  Market  Development"  (Pfau 
WadeGRIPS  and  Channarith  Meng),  GRIPS  Policy  Research  Center  2010,  http://www.grips.ac.jp/r-
center/en/discussion_papers/10-17/ 

28   See "Economic analysis accompanying the Action Plan on Building a Capital Markets Union" – European 

Commission (SWD(2015) 183 final) and the relevant cited academic papers therein. 

12 

 
 
 
 
 
                                                 
systems mature, demand for a broader set of risk management and capital raising tools 
increases beyond what banks can typically supply. 

2.2.  Insufficient features in the area of personal pension products 

Currently,  personal  pension  products  are  regulated  at  national  level  as  further  described  in 
Section 2.3. This results in a diverse set of product features and a lack of portability.  Many 
respondents to the public consultation view the supply of personal pension products currently 
available and sold in the EU as insufficient. These views are supported by the 2015 European 
Commission  scoreboard  on  retail  investor  markets29,  which  shows  that  personal  pension 
products  are  indeed  among  the three  products  with the  lowest  satisfaction  rating  from  retail 
investors. This low ranking reflects the potential for improvement of performance of personal 
pensions in terms of comparability and choice of product features and choice of providers. 

In  addition,  there  is  insufficient  diversity  in  the  provision  of  PPPs.  This  further  affects  the 
supply of certain product features.  

2.2.1.  Personal pension product features 

Some of the concerns on the quality of existing personal pension products, as highlighted in 
the public consultation and the EIOPA technical advice, are presented in more detail below. 
These concerns limit the attractiveness of some existing PPPs for savers.  

(a) Disclosure of information 

In  its  technical  advice30  EIOPA  considers  that  information  asymmetries  between  providers 
and  customers  reduce  trust  in  personal  pension  products.  As  savers  are  less  well  informed 
than PPP providers, they have difficulty judging or comparing the performance and quality of 
the pension product and providers. This information asymmetry has the potential to result in 
sub-optimal  decision  making  by  savers  on  PPPs  and  could  lead  to  less  cost-effective  and 
unintended outcomes for PPP holders.  

Consumer organisations indicated in the public consultation that in some cases information on 
fees and costs is opaque and disclosed in a non-aggregated manner, especially in the case of 
multi-layer products. For consumer organisations, the information provided on returns is often 
incomplete and does not indicate the net return (taking into account all taxes and fees) that the 
pension  saver  will  effectively  receive.  Some  consumer  organisations  indicated  that  PPP 
customers of life insurers are not sufficiently informed about the total amount of the benefits 
they are likely to receive on retirement, even if an annual information sheet is provided by the 

29    The Consumer Market Monitoring Survey allows ranking markets on the basis of the ‘Market Performance 
Indicator’  (MPI)  —  a  composite  index  taking  into  account  five  key  aspects  of  consumer  experience.  The 
components of the index are weighted on the basis of their relative importance as stated by consumers and 
the maximum total score is 100. The score of private pensions in the Market Performance Indicator (MPI) is 
74,1  compared  to  78.5  for  all  services  markets.,  European  Commission  study,    Monitoring  consumer 
at: 
markets 
http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/market_monitoring/docs/mms201
5_final_report_part_iii_en.pdf ;  

European 

available 

Union 

2015, 

page 

100, 

the 

in 

30     See page 11.  

13 

 
 
 
 
 
 
 
 
                                                 
insurer.  The  information  provided  is  often  not  comprehensive  and  does  not  include  the 
expected future benefits or how an annuity product would evolve over time.  

(b) Distribution of PPPs  

One  way  of  overcoming  information  asymmetries  of  PPPs  for  savers  is  to  make  use  of 
independent  advisors  or  compare  products  features  through  online  distribution.  However, 
EIOPA  concludes  that  the  current  distribution  model  of  PPPs  takes  place  through  existing 
through  non-independent 
distribution  channels,  either  directly  by 
intermediaries31.  

the  provider  or 

Figure  1  below  shows  limited  use,  in  the  Member  States  surveyed,  of  independent  advisors 
(except for Czech Republic and Netherlands) or online sales (captured under "other", mainly 
in Hungary). Absence of advice or inability to compare products online can increase risks of 
miss-selling.  

Figure  1.  Distribution  of  PPPs  per  Member  State,  for  ten  Member  States

Source: EIOPA technical advice 

(c)  Diverse levels of net performance after costs and charges 

The Better Finance Study on Pensions Savings – The Real Return32 shows very diverse levels 
of  net  performance  after  costs  and  charges  for  PPPs  in  a  series  of  Member  States.  The  low 
returns  of  PPPs  in  some  Member  States  undermine  attractiveness  of  saving  for  retirement 
through PPPs. As shown in Figure 2 below, Spanish, some French, Italian and Bulgarian PPPs 

31   EIOPA technical advice, section 2.3., p. 39-46. 
32   Available at: 

http://betterfinance.eu/fileadmin/user_upload/documents/Research_Reports/en/Pension_Report_2015_For_
Web.pdf 

14 

 
 
 
 
 
 
 
 
 
                                                 
provided on average negative real returns in the period 2000-2015. In most Member States, 
the average net return of some PPPs is just above the inflation rate.  The study identified net 
returns  clearly  above  inflation  only  in  some  Member  States  (the  Polish  and  Danish  pension 
products providing yearly net real returns above 4%).   

Figure  2.  Net  real  performance  of  pension  funds  (occupational  and  personal),  in 
different Member States, from 2000 onwards  

Evidence suggests that charges and costs of PPPs are one of the causes of negative or low real 
net returns. As an example, COVIP33, the Italian supervisor of pension funds publishes every 
year an aggregate cost index34 of personal pensions sold in Italy. For 2016, the average yearly 

33   Commissione di Vigilanza sui Fondi Pensione 
34    Available at: http://www.covip.it/?cat=199#  

15 

 
 
 
                                                 
costs  (calculated  over a  10  year  period  and  assuming  investments  of  annual  EUR  2500  and 
annual return of 4%) are quite high: from 1.1% to 2.7% depending on the type of investment 
strategy. As shown in Figure 3 below, the charges can take away a considerable amount of a 
pension  pot.  Furthermore,  as  outlined  in  section  2.1.2  a)  above,  fees  are  often  relatively 
opaque, making it more difficult for savers to compare costs and charges of distinct products 
and providers.  

Figure 3 - Reduction in yield through charges in some Member States  – Oxera Report 
2013 

(d) Locked-in nature of some PPPs 

For certain PPPs, which are by nature very long-term products, the insufficient  flexibility for 
savers to switch between products and providers is a major disincentive to take-up. Currently, 
the  majority  of  existing  products  do  not  allow  for  switching  provider,  or  else  switching  is 
costly and subject to penalising exit fees (See an analysis of the costs of switching and advice 
in Annex 9). The Irish Competition and Consumer Protection Commission indicated that for 
unit-linked  funds  in  Ireland,  the  costs  of  early  withdrawals  (which  may  be  triggered  by  the 
wish  to  switch  providers)  typically  amount  to  1%  up  to  5%  of  assets  under  management35. 
Complexity often arises with regard to insurance-based products, whereby individual schemes 
may impose additional restrictions on switching, such as termination fees36. The risk of being 
locked  in  a  product  or  with  a  provider  for  a  long  time,  especially  until  retirement  age, 
regardless  of the performance of the product,  is a reason  for consumers to  be cautious with 
regard  to  acquiring  some  PPPs37.  A  thematic  review  of  the  treatment  of  long-standing 
customers in a similarly long-term business like the life insurance sector by the UK Financial 

35   Irish Competition and Consumer Protection Commission, available at  

http://www.consumerhelp.ie/investment-fees-charges  

36   Oxera: Study on the position of savers in private pension products, 2013 
37   EIOPA technical advice, page 58. 

16 

 
 
  
 
                                                 
Conduct Authority found that the impact these charges can have on returns can be significant 
and may present barriers to shopping around38. 

(e)  Decumulation options 

The decumulation or payout phase of a PPP is the period during which assets (accrued in the 
accumulation phase) are paid out to the saver. Decumulation options of PPPs, i.e. the way that 
benefits are paid at retirement, display significant variations across Member States. Based on 
the  EIOPA  database  of  pensions  plans  and  products  in  the  EEA39,  the  possible  forms  of 
retirement payments are annuities (a stream of payments for as long as the retiree lives), lump 
sums (a single payment), and programmed withdrawals (a series of fixed or variable payments 
whereby the annuitant draws down a part of the accumulated capital).  

The EIOPA advice40 and the EPPF Study show that currently available PPPs sometimes have 
restrictions  as  regard  the  choice  of  out-payments.  Such  restrictions  are  either  imposed  by 
providers or due to national legislation. The use of a certain form of out-payments might also 
be  linked  to  tax  incentives41.  As  shown  in  Figure  4  below,  only  the  annuity-based  form  of 
retirement payment is possible for a majority of PPPs with 44% of PPPs covered by the EPPF 
Study only allowing for annuities. According to the EPPF Study (Interim Report), annuity is 
legally  mandatory  for  nine  PPP  schemes  in  six  Member  States  (Denmark,  Finland,  France, 
Germany, the Netherlands and Sweden)42. However, they do not lead to tax incentives, save 
from  the  Dutch  PPPs.  In  Finland,  the  Netherlands  and  Sweden  there  are  no  PPP  schemes 
allowing  lump  sums  as  a  decumulation  option.  According  to  the  EPPF  Study,  twenty-five 
Member States43 in principle allow lump sums as a decumulation option (but sometimes only 
if combined with annuities44). 

38   FCA  Statement  on  fair  treatment  of  long-standing  customers  in  the  life  insurance  sector,  March  2016 
available  at:  https://www.fca.org.uk/news/statements/fca-statement-fair-treatment-long-standing-customers-
life-insurance-sector  

39   https://eiopa.europa.eu/regulation-supervision/pensions/database-of-pension-plans-and-products-in-the-eea  
40        EIOPA:  Towards  an  EU  single  market  for  personal  pensions:  An  EIOPA  Preliminary  Report  to  COM,      

2014. 

41   A  clear  distinction  should  be  made  between  two  aspects  of  the  decumulation:  1)  mandatory  form  of 
decumulation  required  by  the  legislation  applicable  to  a  PPP  scheme  in  a  Member  State;  2)  form  of 
decumulation which may not be mandatory (i.e. the only legally possible way of decumulation), but which is 
an explicit pre-requisite for some tax benefit in the decumulation phase. 

42   More specifically, out of three PPP schemes in Denmark, one ("Ratepension") treats annuities as mandatory 
option;  in  France  two  PPP  schemes  ("Madelin"  &  "Madelin  agricole")  out  of  three  require  annuities  as 
mandatory  option;  in  Germany  one  ("Riester-Rente")  out  of  the  three  PPP  schemes  requires  annuities  as 
mandatory option.  

43   Austria,  Belgium,  Bulgaria,  Croatia,  Cyprus,  the  Czech  Republic,  Denmark  (not  all  PPPs  there),  Estonia, 
France (not all PPPs there), Germany (not all PPPs there), Greece, Hungary, Ireland (one of the available 
PPP  schemes  requires  a  combination  of  lump  sum  and  annuities),  Italy  (combination  of  lump  sum  and 
annuities),  Latvia,  Lithuania,  Luxembourg  (combination  of  lump  sum  and  annuities),  Malta,  Poland, 
Portugal, Romania, Slovakia, Slovenia, Spain and the United Kingdom. 

44   In Ireland, Italy and Luxembourg. 

17 

 
 
 
 
 
 
  
                                                 
Figure 4 – Decumulation options for 49 existing PPPs 

Decumulation options  of 
existing PPPs 

1% 

22% 

33% 

44% 

Annuities

Lump sum

Annuities & lump sum

other

Source: EPPF Study, Interim Report, p. 39 

Contributions made by consumer associations to the public consultation also touch upon this 
problem suggesting that savers desire flexibility as regards decumulation options at the age of 
retirement.  Indeed,  major  consumer  associations  responding  considered  that  decumulation 
options should be flexible and should be based on the choice of the individual.  

(f)  Protection of the savings invested in the PPPs  

As  personal  pension  products  have  a  long-term  nature,  some  savers  are  concerned  with  the 
eventual  product  of  their  savings  on  retirement.  Contributions  for  retirement  provisions 
constitute often one of the most important investments during a person's life-time. That is why 
some consumer associations underlined the need for enhanced protection of savings in PPPs. 
On  the  other  hand,  consumer  associations  also  indicate  that  adequate  protection  should  not 
hamper investment strategies aiming at better returns.  

The EIOPA technical advice shows that only 20 % of PPPs currently on the market provide 
some  type  of  a  guarantee.  The  vast  majority  of  PPPs  are  pure  defined  contribution  (DC) 
products,  representing  a  market  share  of  80  percent.  Defined  benefit  (DB)  pension schemes 
represent only a very small portion of the total PPPs.  

On  the  other  hand,  consumer  associations  also  indicated  that  guarantees  are  often  a  costly 
product feature adding to the complexity of PPPs. Furthermore, some consumer organisations 
consider that  guarantees  are  sometimes  misleading,  especially  if  only  the  nominal  capital  is 
guaranteed, without taking into account inflation; in their view, a guarantee on capital is only 
useful if the real value of the capital saved (taking into account inflation) is protected. Some 
other consumer organisations considered that a guarantee might be beneficial for consumers 
close to retirement, if at least they compensate for inflation. During the public consultation, 
providers  such  as  asset  managers  and  investment  funds  indicated  that  other  risk  mitigation 
techniques,  such  as  life-cycling45  could  have  a  similar  effect  to  providing  a  guarantee  on 
capital.  

45   Life-cycling involves changing the composition and risk profile of the investment portfolio over time, with a 
more aggressive profile at the start, progressively becoming more conservative as the saver nears retirement. 

18 

 
 
 
 
 
 
 
                                                 
2.2.2. 

Insufficiently diverse supply of PPPs  

At present, the supply of PPPs is mostly dominated by insurers and limited to a set of national 
providers46.  The  EIOPA 
that  PPPs  are  currently 
technical  advice  demonstrates 
overwhelmingly  sold  by  insurers  (more  than  80%  of  assets  under  management  of  PPPs,  as 
shown  in  Figure  5  below).  Occupational  pension  funds  and  asset  managers  represent 
respectively only 9% and 4% of assets under management. The limited number of providers 
supplying  PPPs  reduces  choice  for savers,  as  more  providers  could  provide  products  with  a 
bigger  range  of  product  features.  For  example,  insurers  typically  provide  guarantees  for  in-
payments  and  annuities  for  out-payments.  Alternative  providers  could  favour  distinct  risk 
mitigating strategies for in-payments and distinct options for out-payments. EIOPA considers 
that  as  a  consequence,  savers  cannot  reap  the  benefits  of  wider  choice  of  provider,  better 
quality and lower prices due to the insufficient EU-wide competition between market players. 
Figure 5 bis below shows the limited take-up of personal pensions in certain Member States. 

Figure 5. PPP Assets under Management by type of provider  

Source: EIOPA technical advice 

46   EPPF Study, Interim Report. 

19 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Figure 5 bis-  Assets under Management in Personal Pensions by Member State  

Source: EPPF Study 

In addition, the public consultation indicates limited satisfaction of savers with the supply of 
PPPs. On the other hand, it is instructive that most of the professional stakeholders responding 
to the public consultation do not actually supply PPPs, and almost half of those which do so 
are active in only one Member State. The low supply of personal pension products seems to 
be significantly due to certain national regulatory requirements that are in place for justified 
reasons  (e.g.  prudential  requirements  and  consumer  protection),  but  may  however  have  the 
effect  of  limiting  competition  and  market  access47.    In  addition,  stakeholders  repeatedly 
pointed  in  their  contributions  to  the  public  consultation  to  the  hurdles  represented  by  tax 
requirements, which are presented later in this impact assessment.   

2.3.  Incomplete internal market for personal pension products 

Two main obstacles result in an incomplete internal market for personal pension products: an 
insufficient degree of portability across borders and diverging legal requirements.  

2.3.1. 

Insufficient degree of cross-border provision and portability  

Existing  personal  pension  products  are  not  adapted  to  the  needs  of  mobile  workers,  which 
may  vary  during  the  lifetime  of  a  PPP,  notably  when  exercising  mobility  in  the  EU.  Even 
when portability of PPPs is not legally or contractually prohibited, cross-border portability is 
de facto difficult in practice, harming intra-EU mobile workers. In particular, the recognition 
and transfer of pension contributions across providers and across Member States is hindered48. 
As  a  consequence,  mobile  workers, in  practice,  need  to  sign  up  for  a  new  personal pension 
product  when  moving  across  borders.  On  retirement,  mobile  workers  could  end  up  with 

47    See EIOPA 2014 advice – Towards an EU single Market for Personal Pensions, section 4, p. 28-37. 
48   See ECJ C-269/07, Judgment of 10.09.2009, Commission v Germany, where the Court expressly states that 
tax  reimbursement  obligations  impeding  the  portability  of  private  pension  products  discriminate  against 
migrant workers infringing therefore Article 45 TFEU. 

20 

 
 
 
 
                                                 
multiple  pension  products  from  distinct  providers,  subject  to  distinct  national  requirements. 
Therefore,  mobile  workers  are  incentivised  to  save  for  retirement  through  other  means, 
limiting  the  take-up  of  personal  pension  products.  The  insufficient  provision  of  suitable 
products for mobile workers may thus negatively affect labour mobility in the EU.  

According  to  a  2010  Eurobarometer  survey49,  10%  of  people  polled  in  the  EU  replied  that 
they  had  lived  and  worked  in  another  Member  State  at  some  point  in  the  past,  while  17% 
intended  to  take  advantage  of  the  right  to  free  movement  in  the  future.  The  recent  trend  of 
intra-EU mobility is positive (e.g. 2004:1.7%, 2008: 2.4%, 2012: 2.8%) with the pace picking 
up again after the economic recession. Indeed, according to the 2016 Annual Report on intra-
EU  Labour  Mobility50,  almost  11.3  million  EU  citizens  of  working  age  (20-64  years)  were 
residing  in  a  Member  State  other  than  their  country  of  citizenship,  making  up  3.7%  of  the 
total  working-age  population  across  the  EU-28.  In  addition,  there  were in  2015,  1.4  million 
retired EU citizens living in a Member State other than their country of citizenship. 
 Moreover,  according  to  a  2016  Eurobarometer  survey51,  71%  of  the  respondents  agree  that 
free movement of people within the EU brings overall benefits to the economy. 

As an example of mobile workers, researchers often spend a part of their career in different 
EU Member States working on distinct projects, often with multiple employers. The MORE 
252 study shows that, out of a population of 1.2 million researchers, on average 15% percent 
are currently mobile. 30% of researchers have been mobile during the last ten years. Due to 
insufficient  portability  they  have  difficulties  to  save  for  retirement  by  means  of  personal 
pension  products.  As  a  targeted  response  to  such  needs,  the  Resaver  pension  fund  enables 
employees  to  remain  with  the  same  pension  arrangement  when  moving  between  Member 
States and when changing jobs53. 

According  to  the  feedback  from  professional  stakeholders  taking  part  in  the  public 
consultation, there are a number of hurdles that prevent providers from supplying PPPs on a 
cross-border  basis.  These  include  an  unfamiliar  customer  base  combined  with  language  and 
cultural differences, distinct expectations of the local policyholders, the risks and prevalence 
of fraud; the supervisory environment and national prudential rules, the current generosity of 
public  pension  systems  in  some  Member  States,  local  dominant  distribution  channels  and 
branding difficulties. The differences in national tax treatment are the most important. These 
barriers are presented in more detail below. 

As  part  of  its  technical  advice,  EIOPA  conducted  a  quantitative  study54  to  identify  cross-
border  requirements  for  third  pillar  products.  EIOPA  collected  data  from  thirteen  Member 
States  (Belgium,  Bulgaria,  Czech  Republic,  Estonia,  France,  Croatia,  Italy,  Lithuania, 
Luxemburg,  Hungary,  Malta,  Portugal,  Slovakia)  with  regards  to  cross-border  contracts. 
Other  Member  States  could  not  provide  detailed  information  with  respect  to  cross-border 
services of PPPs.  

This  study  shows  that  only  4%  of  the  assets  under  management  of  these  thirteen  Member 
States  result  from  cross-border  business.  However,  there  are  large  differences  between 

49    http://www.europarl.europa.eu/atyourservice/en/displayFtu.html?ftuId=FTU_3.1.3.html 
50   European  Commission  -  2016  Annual  Report  on  intra-EU  labour  mobility,  December  2016  (ISSN:  2529-

3281). 

51   http://ec.europa.eu/justice/citizen/document/files/2016-flash-eurobarometer-430-citizenship_en.pdf 
52    MORE2 Higher Education Institutions (HEI) report, June 2013.  
53   http://www.resaver.eu/ ; See also Section 3.2. below. 
54     EIOPA technical advice, page 94. 

21 

 
 
 
 
 
 
 
                                                 
Member  States.  In  the  vast  majority  of  Member  States  (Belgium,  Czech  Republic,  Estonia, 
France,  Croatia,  Luxemburg,  Hungary,  Slovakia)  cross-border  business  represents  less  than 
2%  of  assets  under  management.  According  to  the  same  study,  in  Italy,  Portugal  and 
Lithuania cross-border business represents respectively 10%, 20% and 30% of all assets under 
management. In two Member States, Bulgaria and Malta, more than 75% of the assets under 
management  result  from  products  provided  by  cross-border  entities.  In  Bulgaria,  PPPs  are 
provided  by  companies  from  other  Member  States  or  from  outside  the  EU  establishing  a 
branch, whereas in Malta all PPPs are contracted with providers from other Member States or 
from outside the EU. 

2.3.2.  Diverging legal requirements  

Today, due to diverging legal requirements at national level, there is no genuine single market 
for  existing  personal  pension  products  –  and  design,  distribution,  contract  law,  as  well  as 
consumer  protections  are  widely  different.  And  for  instance,  EU  legislation  on  distribution 
requirements for investment products such as IDD55, MiFID II56 and the PRIIPs Regulation57 
do not apply to most personal pension products58. Indeed, products which under national law 
are  "recognised  as  having  the  primary  purpose  of  providing  the  investor  with  an  income  in 
retirement, and which entitle the investor to certain benefits" are exempted.  

Other national legal requirements are also diverse. Table 3 below shows the diversity of  tax 
regimes  applied  in  various  Member  States,  based  on  49  existing  personal  pension  products 
across  the  EU.  In  some  cases,  the  tax  regimes  vary  for  existing  personal  pension  products 
within the same Member State (e.g. Poland).  

Most Member States apply  either the so-called EET system (Exempt  contributions,  Exempt 
investment  income  and  capital  gains  of  the  pension  institution,  Taxed  benefits)  or  the  ETT 
principle  (Exempt  contributions,  Taxed  investment  income  and  capital  gains  of  the  pension 
institution,  Taxed  benefits).  Other  systems  (such  as  TET,  TEE,  EEE)  are  less  common,  but 
can  also  be  found  across  the  EU.  Even  within  the  EET  system,  the  requirements  for  tax 
deductibility  of  contributions  vary  widely  from  one  Member  State  to  another  and  may  be 
often limited to a certain level of income replacement or a fixed amount. Therefore, in order 
to offer qualifying PPPs in different Member States, PPP suppliers manufacture and distribute 
(through  subsidiaries  or  branches  where  appropriate)  products  which  are  tailored  to  the  tax 
law  of  each  Member  State  and  thus  do  not  achieve  economies  of  scale,  due  to  a  lack  of 
standardisation.  

55   Directive  (EU)  2016/97  of  the  European  Parliament  and  of  the  Council  of  20  January  2016  on  insurance 

distribution (recast). 

56   Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  on  markets  in 

financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast). 

57   Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key 

information documents for packaged retail and insurance-based investment products (PRIIPs). 

58   See below, point 4.3.1.1. 

22 

 
 
 
 
 
 
 
 
                                                 
Table 3: overview of direct income tax regimes applicable to personal pension products 

Source: EPPF Study Interim Report 

Within the 49 products identified in the Study there are no two products with 100% identical 
requirements  from  a  tax  perspective,  in  some  cases  even  within  a  Member  State.  As  a 
consequence, a product cannot qualify for tax incentives in more than one Member State.  

The diverging legal requirements across Member States result in the following effects, leading 
to the absence of a single market for personal pensions:  

- Difficulty for providers to operate across borders as they need to adapt their PPPs to 
cater for national requirements. Based on the 49 PPPs surveyed in the EPPF Study, product 
legislation  varies  significantly  across  Member  States,  for  instance  on  authorising  savers  to 
switch  providers.  The  product  legislation  does  not  necessarily  have  a  tax  dimension.  More 
specifically, failing compliance with every single tax requirement a PPP cannot qualify for tax 
relief.  The  differences  between  national  tax  requirements  indeed  require  designing  distinct 
products to access national markets. As an example, in order to benefit from tax relief, PPPs 
in  three  Member  States  (Austria,  the  Netherlands,  Slovenia)  must  have  annuities  for  out-
payments in the decumulation phase, those in two Member States (Cyprus, Malta) require a 
lump sum,  while  thirteen Member States allow for both  annuities and lump sums to  benefit 
from  tax  incentives.  In  other  Member  States  the  out-payments  are  taxed,  whatever  the 
decumulation option (annuities, lump sum or a combination of both)59. An operator willing to 
operate across borders in those jurisdictions would be required to offer a product with lump 
sum  in  certain  Member  States  and  a  product  with  annuities  in  other  Member  States.  Such 
requirements  result  in  the  need  to  design  a  national  product  and  hinder  providers  from 
entering  a  market  of  another  Member  State,  even  where  the  potential  for  PPPs  is  not  fully 

59   EPPF Study, Interim Report. 

23 

 
 
 
                                                 
tapped.  As  already  mentioned,  EIOPA  estimated  in  2015  that  only  4%  of  personal  pension 
asset volumes are sold across borders in the EEA60.  

- The transfer of accumulated capital from a TEE/TTE Member State to an EET/ETT Member 
State can lead to double taxation. The double taxation is, for example, the result of the denial 
of  tax  relief  for  contributions  made  in  Member  State  A  and  the  taxation  of  the  pension  in 
Member  State  B.  On  the  other  hand,  a  transfer  from  an  EET/ETT  system  to  a  TEE/TTE 
system  may  lead  to  non-taxation.  Furthermore,  it  cannot  be  ruled  out  that  the  tax 
administration of a Member State would retrospectively deny tax credit granted in case of the 
transfer  of  accumulated  savings  outside  its  jurisdiction  to  a  Member  State  that  prescribes 
different  condition  for  tax  relief  (e.g.  enables  to  take  programmed  withdrawal,  or  sets  out 
different  minimum  retirement  age).  Since  direct  taxation  is  within  the  competence  of 
individual  Member  States,  the  variety  in  taxation  regimes  hinders  the  application  of  the 
principle of non-discrimination under EU law61.  

In  some  Member  States,  specific  legal  requirements  result  in  a  limited  supply  of  certain 
products.  For  example,  the  option  to  exit  with  a  lump  sum  is  not  available  in  six  Member 
States, as this would be dis-incentivised in a prohibitive way by national tax requirements62. In 
other cases, legal or tax restrictions on investment options can have adverse consequences on 
returns. For example, some national rules limit tax benefits to products that offer a guarantee 
on return. In the current economic context of low interest rates this requirement could result in 
high costs for providers and correspondently low returns for savers, making the product un-
attractive.  

2.4.  Other factors out of scope of this impact assessment 

Besides the main drivers, problems, and consequences that are assessed above,  the problem 
tree (see below) also shows a number of other factors that are outside of the assessment scope. 
These other factors are described below.   

Demographic changes in the following years will lead to the ageing of the population and an 
increased number of pensioners. Such demographic tendencies increase the costs of existing 
pension  systems  and  put  pressure  on  public  finances,  creating  incentives  for  measures  by 
public authorities.  

Such measures in public and occupational pension schemes can affect pension adequacy and 
hence affect the need for additional personal savings for retirement. The pressure on state-run 
pensions systems is well documented,and was described in the 2012 White Paper on adequate, 
safe and sustainable pensions63. While state-based pensions provide the majority of retirement 
income  in  the  EU,  demographic  and  fiscal  pressures  would  limit  their  capacity  to  sustain 
adequate retirement incomes in the long run64. Accordingly, supplementary retirement sources 
such  as  personal  pensions  are  likely  to  increase  and  can  bring  a  positive  contribution  to 

60   EIOPA technical advice, p. 8. 
61   See EIOPA: Towards an EU single market for personal pensions: An EIOPA Preliminary Report to COM, 

2014. 

62   For  example,  the  Dutch  tax  law  penalises  the  pay-out  of  a  lump  sum  by  a  high  tax  rate.  Source:  EIOPA 

technical advice, p. 60. 

63   COM(2012) 55 final, of 16 February 2012. 
64    Carone,  Giuseppe  and  Costello,  Declan  and  Diez  Guardia,  Nuria  and  Eckefeldt,  Per  and  Mourre,  Gilles,    
Economic Growth and Fiscal Sustainability in the EU: The Impact of an Ageing Population (April 3, 2008). 
Available at SSRN:  

      https://ssrn.com/abstract=1997174  or http://dx.doi.org/10.2139/ssrn.1997174  

24 

 
 
 
                                                 
solving the pension challenge65. The Annual Growth Survey (AGS) 201766 noted that "broad 
coverage  of  supplementary  (occupational  and  personal)  pensions  can  play  a  key  role  in 
retirement income provision, in particular where the adequacy of public pensions might be a 
challenge, and should be promoted by appropriate means, depending on the national context".  

A  well-functioning  internal  market  for  personal  pension  that  provides  better  options  for 
citizens  to  save  for  retirement  could,  as  a  potential  long  term  side  impact,  contribute  to 
addressing  the  existing  pension  gap  (See  Glossary  in  Annex  5)  as  well  as  deteriorating 
replacement  ratios.  The  main  side  effect  achieved  over  time  could  be  that  retirees  across 
Europe  have  better  options  to  save  for  retirement  to  help  address  potential  shortages  in 
retirement income.  

At  the  same  time,  the  coverage  of  supplementary  pensions,  and  thus  their  contribution  to 
pension  adequacy,  remains  very  uneven  across  the  EU.  Personal  pensions  have  relatively 
wide take-up in only a few Member States (over 60% coverage in the Czech Republic, over 
30%  in  Sweden  and  Germany67)  while  in  most  Member  States  take-up  is  moderate  and 
fragmented, and in some, nearly non-existent. 

In addition, the ongoing dynamics of the labour market result in a more mobile workforce and 
an increase of self-employed workers with often inadequate pension savings.  Another factor 
leading  to  low  demand  for  personal  pensions  is  the  limited  disposable  income  available  for 
saving for retirement in some Member States, especially amongst young generations.  

These issues are not covered by this impact assessment. 

65    OECD,  Pensions  at  a  Glance  2011,  Retirement-income  Systems  in  OECD  and  G20  Countries,  p.  176-177, 
http://www.oecd-ilibrary.org/finance-and-investment/pensions-at-a-glance-

available 
2011_pension_glance-2011-en;jsessionid=5f2dmm3ii527f.x-oecd-live-03ISBN:9789264096288 
(PDF);9789264095236 (print) 

at: 

66  Annual  Growth  Survey  2017  (COM(2016)725  final  of  16  November  2016),  p.  12,  available  at: 

https://ec.europa.eu/info/sites/info/files/2017-european-semester-annual-growth-survey_en_0.pdf  

67   Idem. 

25 

 
 
 
                                                 
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Problem Tree 

Demographics: 

ageing population 

Adequacy of 
retirement income 
from public and 
occupational 
pensions  

Lack of purchasing 
power, reducing the 
ability to save in some 
Member States 

 Self-employed 
workers without 
adequate pension 
coverage 

Diverging national legal 
requirements (including 
taxation) 

Insufficient supply of PPPs in 
some Member States  

Underdeveloped capital 
markets in the CMU context  

Insufficient features in the area 
of personal pension products   

Insufficient cross-border 
provision and portability of 
personal pensions 

1. Absence of a true single 
market for personal pensions 
in the EU  for  consumers and 
providers 

2. Insufficient productive 
investments to fuel growth 
in the EU  

3. Low uptake of personal 
Cross-border problems: lack 
pension products  
of cross-border provision and 
portability of personal 
pensions 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.  OBJECTIVES 

3.1.  General and specific objectives 

For the EU economy in general, an EU personal pension framework could contribute to 
address some of the personal pension market shortcomings and to increasing savings and 
investment.  The  PEPP  framework  could  indeed  help  to  create  large  pools  of  pension 
savings,  thus  injecting  more  savings  into  capital  markets  and  channel  additional 
financing  to  productive  long-term  investments  which  would  contribute  among  other 
projects to complete the CMU.  

Regarding  the  product  features  on  the  personal  pension  market,  the  PEPP  framework 
could bring more simplicity, safety, transparency, cross-border enhancements and overall 
minimum  quality  standards  to  the  personal  pension  market,  addressing  the  needs  of 
savers and providers. This could improve the attractiveness of personal pension products, 
towards creating in the long run a single market for personal pensions.  

These general objectives can be broken down in the following, more specific objectives:  

Problems 

Specific objectives 

Underdeveloped capital markets in the CMU context 

Increase investment in the EU and contribute to 
completing the CMU  

Insufficient features in the area of PPPs  

Enhance  product  features  on 
pension market  

the  personal 

Cross-border  problems: 
provision of personal pensions and their portability 

insufficient  cross-border 

 Enhance 
portability of personal pension products 

the  cross-border  provision  and 

3.2.  Consistency of the objectives with other EU policies 

The initiative  would reduce  the obstacles to  cross-border provision of personal pension 
products, overcoming existing hurdles in national tax and legal requirements applicable 
to such products.  

The  initiative,  by  enhancing  the  cross-border  portability  of  personal  pension  products, 
would  contribute  to  further  facilitating  the  free  movement  of  workers,  one  of  the  key 
pillars of the internal market. Thus the initiative is in line with the objective of promoting 
labour mobility, highlighted in President Juncker's Political Guidelines for the European 
Commission68. 

68   See  Jean-Claude  Juncker,  A  New  Start  for  Europe:  My  Agenda  for  Jobs,  Growth,  Fairness  and 
Democratic  Change  (Political  Guidelines  for  the  next  European  Commission,  Strasbourg,  15  July 
2014). 

27 

 
 
 
                                                 
Developing a PEPP framework is also in line with the Commission's 2012 White Paper 
on Pensions69, and in particular with the intention of developing complementary private 
retirement schemes by encouraging Member States to optimise tax and other incentives 
for such schemes.  The White Paper focusses on enhancing the  safety of supplementary 
pension  schemes70,  as  well  as  on  making  supplementary  pensions  compatible  with 
mobility;  it  supports  legislation  protecting  the  pension  rights  of  mobile  workers71  and 
promotes  the  establishment  of  pension  tracking  services  across  the  EU.  In  accordance 
with  another  commitment  in  the White  Paper72, the Commission  is  supporting, through 
Horizon  2020,  a  consortium  of  employers  in  creating  a  single  European  pension 
arrangement  (RESAVER)  that  will  offer  a  defined  contribution  plan,  tailor-made  for 
research organisations and their employees73. 

3.3.  Consistency of the objectives with fundamental rights 

The  EU  is  committed  to  high  standards  of  protection  of  fundamental  rights  and  is 
signatory  to  a  broad  set  of  conventions  on  human  rights.  In  this  context,  the  proposed 
objectives  as  discussed  above  are  not  likely  to  have  a  direct  impact  on  these  rights,  as 
listed  in  the  main  United  Nations  conventions  on  human  rights,  the  Charter  of 
Fundamental Rights of the European Union which is an integral part of the EU Treaties, 
and the European Convention on Human Rights ('ECHR'). 

3.4.  Subsidiarity  

Regarding  subsidiarity,  under  Article  4  TFEU,  EU  action  for  completing  the  internal 
market has to be appraised in the light of the subsidiarity principle set out in Article 5(3) 
TEU.  Hence  it  must  be  assessed  whether  the  objectives  of  the  proposal  could  not  be 
achieved by the Member States in the framework of their national legal systems and, by 
reason of its scale and effects, is better achieved at EU level. 

3.4.1.  The  objectives  of  the  proposed  action  cannot  be  sufficiently  achieved  by  the 

Member States 

The  uncoordinated  efforts  of  Member  States,  either  at  central  level  or  at  regional  and 
local level, cannot remedy the legal fragmentation in product regulation, which results in 
extra compliance cost for providers and discourages them from going cross-border. For 
instance,  EU  legislation  on  distribution  requirements  for  financial  products  such  as 
IDD74,  MiFID  II75  and  the  PRIIPs  Regulation76  do  not  apply  to  most  personal  pension 
products, leaving national legislation to apply77.  

69   White Paper "An Agenda for Adequate, Safe and Sustainable pensions",  COM (2012) 55 final of 16 

February 2012, available at: 

       http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0055:FIN:EN:PDF  
70   Already done through the recast of the Directive on Institutions for Occupational Retirement Provision 

(Directive (EU) 2016/2341, OJ L 354 of 23 December 2016, p. 37). 

71   Partially achieved through the adoption of a directive on improving the acquisition and preservation of 

supplementary pension rights – Directive 2014/50/EU (OJ L 128 of 30 April 2014, p. 1). 

72    Pursuing the on-going work on a pan-European pension fund for researchers. 
73   See http://www.resaver.eu/resaver/pension-fund/how-it-works/   
74   Directive  (EU)  2016/97  of  the  European  Parliament  and  of  the  Council  of  20  January  2016  on 

insurance distribution (recast). 

28 

 
   
 
 
                                                 
With PPP markets left exclusively to national regulation, asymmetric information issues 
can  be  observed  between  providers  and  savers,  particularly  in  a  cross-border  context78. 
The  insufficiently  complete  information  to  savers  from  providers  at  national  level 
reduces  trust  in  PPP  providers  and  often  results  in  fewer  transactions,  lower  levels  of 
engagement with pension provision, alongside poor decision-making by savers.  

The portability of PPPs is a concern for individuals moving cross-border while trying to 
maintain the same product and provider. At present, upon changing residence to another 
Member  State,  individuals  in  practice  have  no  choice  but  to  search  for  a  new  product 
developed  by  a  new  provider  in  the  new  Member  State,  on  the  basis  of  substantially 
different rules, instead of continuing to save in their former Member State. National tax 
incentives  encourage  individuals  to  save  for  retirement  and  are  key  to  promoting  the 
take-up  of  personal  pensions;  losing  such  tax  benefits  on  moving  to  another  Member 
State  is  currently  a  barrier  to  the  cross-border  portability  of  personal  pension  products. 
Member States alone cannot remedy portability issues. 

3.4.2.  The objectives of the proposed action, by reason of its scale and effects, can be 

better achieved at EU level 

Action at EU level can substantially add value to remedy the consequences, particularly 
in terms of costs, of market fragmentation. If no EU action is taken, asset pools are likely 
to  remain  small  and  limited  to  national  borders,  without  economies  of  scale,  and 
competition  would  remain  restricted  to  domestic  providers.  Individual  savers  are 
therefore  not  likely  to  benefit  from  lower  prices  and  better  products  that  would  result 
from  efficiency  gains  and  returns  of  large  asset  pools.  Fragmentation  is  expensive  also 
for  providers:  the  smallest  divergence  in  national  regulation  means  extra  compliance 
cost. There are limited incentives for providers to offer products cross-border mainly due 
to high costs. On the other hand, a standardised EU personal pension product is expected 
to cut providers' costs by creating larger asset pools. For example, a study79 shows that 
spreading fixed costs over larger pool of members could save 25% administration costs. 

The  creation  of  an  EU  legislative  framework  for  personal  pensions  would  diminish 
providers'  costs  by  creating  economies  of  scale,  particularly  in  the  areas  of  investment 
and administration. The creation of an EU personal pensions statute would help providers 
operate  cross-border  as  it  would  allow  them  to  centralise  certain  functions  at  an  EU-
level80 (rather than running them locally or outsourcing). Standardisation would make it 
easier  for  providers  to  offer  a  pension  solution  to  corporate  clients  active  in  several 

75   Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in 

financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast). 

76   Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 
on key information documents for packaged retail and insurance-based investment products (PRIIPs). 

77   IDD however applies to pension products structured as life insurance. 
78   See EIOPA technical advice, section 2.2.2.: Bridging the information asymmetry, p. 27. 
79   Is  there  an  optimal  pension  fund  size?  A  scale  economy  analysis  of  administrative  and  investment    
costs,  DNB  Working  paper  No.  376.  https://www.dnb.nl/binaries/Working%20Paper%20376_tcm46-
289626.pdf 

80   According to a 2015 EFAMA consultation conducted amongst its members, 94% of respondents would 
pool  and  manage  assets  at  a  central  level,  65%  would  centralise  the  administration  and  47%  would 
centralise the depositary function. 

29 

 
   
 
 
 
 
                                                                                                                                                 
 
Member  States  and  looking  for  an  EU-wide  personal  pension  solution  for  their 
employees.  This  could  also  bring  a  potential  to  realise  efficiency  gains  in  the  area  of 
distribution through using for example digital channels for selling personal pensions, as it 
is  the  case  already  e.g.  in  the  UK.  As  such,  EU  legislative  framework  for  personal 
pensions could be flanked by EU policy work in the area of FinTech81. 

Greater  choice  of  safe  and  high  quality  personal  pension  products  is  a  benefit  to  all 
individuals,  whether  employed,  mobile  or  self-employed.  An  EU  single  market  for 
personal  pensions  would  make  the  product  accessible  to  a  wider  range  of  individuals. 
Minimum  product  requirements  laid  down  in  EU  rules  would  create  transparency  and 
simplicity  as  well  as  safety  for  investors.  In  addition,  it  would  accommodate  the 
increasing  mobility  of  EU  citizens  and  the  increasingly  flexible  nature  of  work  (see 
Annex 3 for more details on how stakeholders would be affected by this initiative). For 
self-employed,  who  do  not  contribute  in  such  capacity  to  a  state-based  or  occupational 
pension,  personal pensions could be an attractive way to save for retirement.  

81   See https://ec.europa.eu/info/finance-consultations-2017-fintech_en for more details. 

30 

 
   
 
 
 
 
                                                 
4.  POLICY OPTIONS AND ANALYSIS OF IMPACTS 

The policy options and analysis of impacts are assessed in three consecutive steps. 

In  a  first  step,  in  section  4.1,  the  high  level  policy  options  under  consideration  are 
assessed against achieving the broad policy goals. In a second step, section 4.2 assesses 
the  individual  policy  options  of  the  preferred  set  of  key  product  features  and  its 
implications in terms of tax treatment.  

4.1.  General policy options 

As a first step, with a view to addressing the gaps described above, a range of high level 
policy options are described and analysed below. A "voluntary 2nd regime" designates a 
parallel EU-level regime, which would come in addition to the existing national personal 
pension regimes.  

In the public consultation, several policy options were presented, including the creation 
of a personal pension product and the harmonisation of national regimes.  Based on the 
replies received, they will be analysed further below.  

Other policy options were also initially contemplated, such as the creation of a code of 
conduct82 or of a personal pension account83. They are nevertheless not further analysed 
in the remainder of this section as they would not sufficiently address the objectives of 
completing  the  CMU  and  of  enhancing  product  features  of  the  personal  pensions,  not 
leading  to  the  creation  of  a  single  market  for  personal  pensions.  Indeed,  a  code  of 
conduct  would  lack  legal  certainty  that  there  will  be  a  single  market  for  personal 
pensions. This option would therefore most likely not open up national markets to new 
types of providers.  

As  to  a  potential  personal  pension  account,  this  option  implies  the  existence  of  a 
"federal" tax on personal pension products, as in the USA, which is not considered in this 
Impact  Assessment.  In  addition,  as  this  regime  is  very  flexible  on  the  key  features,  a 
pension  account  could not  bring  the  standardisation  of  personal  pensions.  In  particular, 
this flexibility could lead to increased miss-selling risks, especially regarding savers with 
limited  financial  education.  Overall,  this  option  would  limit  the  creation  of  a  pension 
internal market, keeping this market local and not bringing any cross-border benefits. 

82   Under this option, the EU would foster cooperation between stakeholders (Member States, providers, 
savers) around a common approach to the provision of personal pension products. This would imply 
designing,  together  with  national  authorities  (in  particular  tax  authorities),  potential  providers 
(insurers, pension funds, investment firms and asset managers and banks) and savers, a series of best 
practices which providers could follow when offering personal pensions. These best practices could be 
implemented  through  a  code  of  conduct  that  could  be  adopted  by  national  authorities  (in  particular 
taxation authorities) and providers. 

83   Under  this  option,  a  European  personal  pension  account  would  be  established,  similarly  to  the 
Individual Retirement Arrangement (IRA) supplied in the United States. An IRA is a personal savings 
plan,  which  consolidates  in  one  single  account  all  investments  in  pension  savings.  Member  States 
would  be  free  to  provide  individuals  tax  advantages  for  savings  in  the  pension  account  subject  to 
conditions,  for  example  the  age  of  retirement.  The  pension  account  encompasses  different  types  of 
plans, depending on the income or employment status of an individual, their tax circumstances and the 
investment  options  they  choose.  The  personal  pension  account  would  be  flexible  and  not  pre-define 
investment options. Therefore, it would allow for investments in individual stocks and bonds, money 
market funds and mutual funds, life insurance products etc. There could be different types of providers 
including banks, credit unions, insurance companies, mutual fund companies and brokerage firms. 

31 

 
   
 
                                                 
High level policy option 

Description 

1. Baseline scenario  
2. Pan-European Personal Pension Product 
(PEPP) 

3. Harmonisation of national regimes 

No policy action is taken 

Establish a statute for a Pan-European personal pension 
product (PEPP), based on a set of common and flexible 
features through a voluntary 2nd regime.  
Harmonise national personal pension regimes on the key 
features of a personal pension product and disclosure 
requirements, taxation, type of providers and prudential 
supervision 

4.1.1.  Baseline scenario 

Under the baseline scenario, no action is undertaken  and the problems described above 
would continue to exist. This would imply that the asset pools are likely to remain small, 
limited by national borders and providers would not benefit from economies of scale and 
investment  diversification  would  be  limited.  As  a  consequence,  there  would  be  limited 
opportunities  to  transfer  savings  in  personal  pensions  into  long-term  investments  and 
providers  and  the  development  of  a  deep  and  liquid  Capital  Markets  Union  would  be 
hindered.  

Individuals  would  continue  to  have  access  to  national  pension  products  where  they  are 
currently  available.  However,  they  might  not  benefit  from  the  best  outcomes  on 
retirement  as  national  personal  pension  products  would  likely  continue  to  provide 
insufficient transparency, remain costly and provide limited returns and might encounter 
difficulties to switch products. Importantly, in a number of Member States, there would 
be no personal pension product available. In addition, mobile workers would continue to 
have  difficulties  to  manage  savings  in  personal  pension  products  when  moving  across 
borders and might not benefit from national tax incentives.  

The contribution of PPPs to increase the savings for retirement would continue to follow 
the  current  trendline  and  gradually  increase  over  time.  This  assumes  that  existing  tax 
incentives on national products, where available, would continue to exist, driving uptake 
of  existing  PPPs.  Based  on  a  quantification  exercise,  under  the  baseline  scenario  the 
uptake of PPPs is estimated to increase (notably due to the continuation of inpayments in 
existing  PPPs)  from  EUR  0.7  trillion  today  to  EUR  1.4  trillion  by  2030.  Further 
explanation on the economic model can be found in Annex 4.   

4.1.2.  Pan-European personal pension product  

Description 

Under this option, a legislative instrument (a Regulation) would define a pan-European 
personal pension product (PEPP) through a set of common  rules, thereby establishing a 
2nd regime in the European Union84. Similar types of 2nd regimes are in place, e.g. in the 
area  of  company  law85  or  financial  services.  Indeed,  the  regime  for  Undertakings  for 
Collective Investment in  Transferable Securities  (UCITS) shows an example of  a  well-

84   That is, an EU-level regime existing in parallel with national regimes. 
85  See, 

the  European  Company  Statute 
content/EN/TXT/HTML/?uri=LEGISSUM:l26016&from=EN 

example, 

for 

- 

  http://eur-lex.europa.eu/legal-

32 

 
   
 
 
                                                 
 
functioning  EU  single  market  for  compliant  investment  funds.  Similarly,  a  successful 
development  of  the  PEPP  over  the  coming  years  would  set  a  benchmark  for  national 
personal products to follow in terms of product features. 

Box 2 - The UCITS example 

Since its origin in 1985, the UCITS Directive, through its successive revisions, has been 
the  basis  on  which  a  genuine  European  retail  investment  fund  'product'  has  been  built. 
UCITS  has  created  a  comprehensive  legal  framework  that  offers  increased  investment 
opportunities for businesses and households alike.  
At the same time, the directive also introduced a financial services 'passport', whereby a 
UCITS fund can be marketed across the EU, following authorisation from the competent 
authorities  of  its  country  of  domicile  (i.e.  the  home  country)  and  notification  to  the 
competent authorities of the host market. Cross border subscriptions to UCITS compliant 
investment funds have grown considerably since the UCITS rules were first introduced in 
1985. The UCITS acronym has developed into a strong EU brand and is nowadays, apart 
from Europe,  also recognised in  Asia and South America.  The success of UCITS as  a 
cross border vehicle for investments is borne out by the rapid growth of assets that are 
managed in UCITS compliant funds especially in the last years. As a matter of fact, after 
a slow start throughout the second half of the eighties, the total assets under management 
grew from just above EUR1 trillion in 1993 to EUR8.2 trillion by end 2015. 

This  success  is  essentially  based  on  a  robust  harmonized  framework,  regularly  updated 
since its inception and a fund passport.  

The  fact  that  fund  managers  have  been  competing  on  their  domestic  markets  with 
investment funds and asset managers from other Member States led to an increase in the 
overall quality of the product offering available and also helped to reduce costs and fees.  

The chart below shows the progression of the UCITS volumes over time. It shows that 
Assets under Management reached 2 trillion EUR over ten years after the launch of the 
framework.  

33 

 
   
 
 
 
 
 
 
 
Source: European Fund and Asset Management Association (EFAMA), March 2017 

A  "European  statute"  for  such  a  personal  pension  product  would  define  key  features 
contributing to a single market for providers, helping complete the CMU and aiming to 
provide  simple,  transparent  and  safe  products  for  PEPP  savers.  Such  features  could 
notably  include  rules  on  distribution  and  advice,  information  requirements,  investment 
policy (see section on key features below). In addition to rules protecting PEPP savers for 
the  sale  of  the  product  and  during  the  accumulation  or  decumulation  phases,  the 
possibility  to  switch  PEPP  provider  and  benefit  from  portability  would  be  key  to 
addressing  PEPP  savers'  concerns,  in  particular  when  exercising  mobility  within  the 
European Union.  

The optimal definition of the PEPP key features is further described in the next section, 
describing  the  options  per  key  feature.  In  this  respect,  the  key  features  should  achieve   
balance  between  more  standardisation  for  the  PEPP  and  sufficient  flexibility  so  that 
providers can adapt to the different national requirements for tax incentives. In addition, 
the  tax  treatment  of  the  PEPP  can  be  subject  to  more  convergence,  as  presented  in  the 
next section.  

In analogy with the UCITs example, it can be reasonably expected that the introduction 
of the PEPP would be a long term process which could take more than a decade to reach 
its full potential. In particular the tax treatment by Member States of the PEPP will be an 
important factor for the provision and the take-up of the PEPP. In addition, the uptake of 
the  PEPP  could  potentially  consist  of  an  important  substitution  effect  whereby  funds 
currently  saved  in  deposits,  other  investment  products  or  even  existing  PPPs  would  be 
redirected  towards  the  PEPP.  Consequently,  only  a  limited  part  of  the  PEPP  uptake 
would be incremental savings.  

Based on the same quantification assumptions as for the baseline scenario, the volumes 
of  PPPs  combined  with  the  PEPP  could  reach  EUR  2.1  trillion  by  2030  in  the  most 
favourable scenario whereby the PEPP would be granted a favourable tax treatment in all 
Member States. This implies that the introduction of the PEPP would contribute to 50% 

34 

 
   
 
 
 
of  the  growth  on  the  whole  personal  pension  market  between  now  and  2030.  This 
estimate  is  based  on  the  favourable  assumption  that  PEPP  would  receive  the  same  tax 
treatment as existing PPPs in all Member States under the baseline scenario. Should the 
favourable treatment of the PEPP be limited to fewer Member States, or even absent, the 
development  of  the  PEPP  would  be  sufficiently  lower.  Should  no  favourable  tax 
treatment  be  granted,  savers  would  be  disincentivised  to  contribute  to  a  PEPP  and  this 
would  result  in  an  outcome  close  to  the  baseline  scenario  of  EUR  1.4  trillion. 
Nevertheless,  the  fiscal  treatment  of  the  PEPP  could  gradually  develop  over  time,  and 
national products could take on board the features of the PEPP. A detailed description of 
the economic model can be found in Annex 4.  

Consequences 

Retail  investors  will  be  provided  with  an  additional  option  to  save  for  retirement,  with 
high quality product features, ensuring the PEPP is a safe, transparent and pan-European 
pension product which has the potential to provide better returns. The PEPP project is to 
be conceived  in  a  long-term perspective as  the provision and  take-up of PEPPs  would 
take time. The overall consequences, extent and timing of benefits of this option would 
depend on the approach taken as regards the level of definition of product features and 
the implications for the national tax treatment of PEPPs. In general, all types of providers 
would  benefit  from  economies  of  scale  as  the  PEPP  would  allow  creating  larger  asset 
pools and through the standardised product features. The provision of a personal pension 
product cross-border would be facilitated. Individuals, especially in Member States with 
low  product  supply,  would  benefit  from  more  choice.  As  a  voluntary  regime,  a  PEPP 
framework  would  not  entail  any  direct  consequences  for  national  models  or  personal 
pension  products  which  will  continue  to  exist.  Nevertheless,  a  substitution  between 
distinct  financial  products  held  by  households,  from  deposits,  investment  products  and 
PPPs towards the PEPP could occur.   

Assessment 

The  level  of  standardisation,  and  hence  the  possibility  for  providers  to  pool  assets  and 
achieve  economies  of  scale,  would  depend  on  the  key  features  determined  in  a  statute. 
This  would  contribute  to  opening  market  opportunities  to  providers  whose  access  is 
complicated  by  existing  national  requirements.  In  particular  the  PEPP  is  expected  to 
increase competition in a market largely dominated by insurers, creating opportunities for 
asset  managers,  investment  funds,  pension  funds  and  banks  to  enter  a  new  market. 
Increased  competition  would  bring  benefits  to  savers  by  optimising  product  features, 
lowering costs and potentially improve returns. It would also allow savers to benefit from 
the wider  range of provider  choosing the product from those providers that  better cater 
for  their  needs  in  terms  of  product  features,  offer  lower  costs  or  potentially  higher 
returns.  

Most professional stakeholders assumed in their responses to the public consultation that 
this  option  would  largely  address  the  challenges  faced  by  existing  PPPs  in  the  EU  – 
increasing  investment  in  the  EU  and  contributing  to  complete  the  CMU;  enhancing 
product features on the personal pension market, in particular improving efficiency, asset 
allocation  and  returns;  contributing  to  innovation  within  the  PPP  market;  finally, 
increasing cross-border provision of PPPs by EU-based providers and widening of their 
range.  As  benefits  of  providing  a  personal  pension  product  on  an  EU  scale,  most 
professional stakeholders which are insurance companies, SMEs and/or involved in the 

35 

 
   
 
management of funds esteem as very important the lower operating costs and making the 
product attractive to mobile customers.  

The  PEPP  would  co-exist  with  national  products  tailored  to  specific  national 
requirements  and  qualifying  for  national  tax  incentives.  However,  even  if  its  take-up 
would be affected by its tax treatment in the Member States, the establishment of a single 
market,  as  well  as  the  standardisation  of  key  components  of  the  product  would  allow 
providers  to  compete  and  offer  a  simple,  transparent  and  safe  product  on  a  European-
wide basis. In their contribution to the public consultation, professional stakeholders, in 
particular asset managers, showed interest in the possibilities of standardisation provided 
by  the  PEPP,  even  without  national  tax  incentives.    As  the  PEPP  framework  would 
establish an additional regime in parallel to existing national regimes, any lack of take-up 
of  the  PEPP  would  not  have  a  negative  impact  on  the  existing  national  regimes  or 
products. 

4.1.3.  Harmonisation of national regimes  

Description 

Under  this  option  the  EU  would  harmonise  national  personal  pension  regimes,  either 
through partial harmonisation of the key features or through full harmonisation, including 
of the tax regime.  

Consequences  

Maximum harmonisation, including harmonisation of tax treatment, would contribute to 
establishing a real single market, as well as genuine pan-European products. A legislative 
statute would grant legal certainty to providers and protection to savers.  

Harmonisation  of  the  product  features  only  would  lead  to  a  similar  outcome  as  the 
establishment  of  a  regulatory  statute  for  a  PEPP  but  involve  major  consequences  for 
Member States' personal pensions markets. 

Assessment 

A maximum harmonisation option could bring the most in terms of creating a truly pan-
European single market, with homogeneous asset pools and ease of cross-border access.   
Without it, national tax laws continue to incentivise most providers (i.e. the supply side) 
to  offer  different  products  and  organise  all  related  services  (such  as  investment  advice, 
taxation,  accounting,  distribution  and  transparency,  reporting  to  supervisor)  locally  in 
each Member State. However, the feasibility of this option is questionable, in light of the 
differences between Member States' personal pensions regimes, both in terms of tax and 
labour law, and Member States’ insufficient willingness to change their personal pension 
taxation rules. 

The  necessary  changes  to  existing  pension  products  would  entail  considerable 
compliance  costs  (unless  they  were  "grandfathered"  and  could  continue  under  previous 
rules).   

Professional stakeholders expressed cautiousness on the option of harmonising national 
personal pension regimes, especially with a view to tax requirements. Most respondents, 
across all sectors and fields of activity, consider that such a solution would partly address 

36 

 
   
 
 
the challenges currently faced by the existing PPPs in EU, or would not address them at 
all.  

Comparison of policy options 

EFFECTIVENESS 

EFFICIENCY 

COHERENCE 

POLITICAL 
FEASIBILITY 

 (cost-
effectiveness) 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

0 

+ 

- - 

Policy  
option  

Option 1 
No policy change 

Increase 
investment 
in 
the  EU  and 
complete 
the 
CMU 

Enhance 
product 
features on 
the personal 
pension 
market 

Enhance the cross-
border provision and 
portability of personal 
pension products 

0 

 0 

0 

0 

0 

+ 

+ 

Option 2 
Personal  Pension 
Product 
Option 3 
Harmonisation  of 
national legislation 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

++ 

++ 

 - - 

++ 

+ 

+ 

+ 

+ 

On objective 1 (increase investment and contribute to completing the CMU), the baseline 
scenario  (option  1)  would  not  result  in  a  change  as  compared  to  the  fragmentation  of 
national capital markets today. Under the favourable assumption of preferential national 
tax treatment, the PEPP regime (option 2) would over time result in mobilising some part 
of household financial assets (e.g. deposits) towards capital markets and in asset pooling, 
whether providers offer a PEPP in one or several Member States.. While  the effects on 
additional investments on capital markets would be limited, the PEPP framework would 
contribute to the CMU by further integrating national capital markets. Harmonisation of 
national  regimes  (option  3)  would  take  the  completion  of  the  CMU  further  by  directly 
harmonising the existing personal pension products.  

On objective 2 (enhance product features on the personal pension market), the baseline 
scenario  (option  1)  would  not  address  the  suboptimal  features  identified  above.  The 
PEPP  regime  (option  2)  would  result  in  setting  higher  standards  for  existing  personal 
pension products to replicate. Again, harmonisation of national regimes (option 3) would 
further address this objective by tackling all existing products.  

Regarding  objective  3  (cross-border),  the  baseline  scenario  (option  1)  would  not 
overcome barriers to cross-border provision and portability, they would not be coherent 
with  other  objectives  such  as  improving  workers  mobility  and  improving  access  to 
retirement options for self-employed persons. On the contrary, options 2 and 3 could be 
expected to facilitate cross-border activity and portability and therefore also contribute to 
other policy objectives such as the workers mobility. However, while the harmonisation 
of  national  regimes  (option  3)  would  bring  the  greatest  theoretical  benefits,  it  would 
imply upheaval on national pensions markets, including existing products. 

37 

 
   
 
 
 
 
 
 
 
 
 
 
On  the  objective  of  coherence  with  other  EU  policies,  the  baseline  scenario  (option  1) 
would obviously be neutral. The PEPP regime (option 2) would show some similarities 
to  previous  EU  initiatives  in  financial  services,  such  as  the  creation  of  a  new  product 
regime under the UCITS or ELTIF initiatives.  

Regarding  the  objectives  of  efficiency  and  political  feasibility,  neither  the  public 
consultation  nor  the  meeting  with  tax  experts  showed  Member  States'  support  to 
harmonisation  (option  3).  In  particular,  the  harmonisation  –  if  feasible  -  of  existing 
regimes would most likely create considerable compliance costs for providers. Potential 
providers considered the harmonisation of national regimes as least effective (option 3). 
Similarly,  harmonisation  of  national  regimes  (option  3)  would  be  comparable  to  the 
creation of a  single EU rulebook  in the insurance  or  banking sectors. However support 
was  expressed  for  a  PEPP  regime  (option  2).  Consumers  contributing  to  the  public 
consultation  were  highly  supportive  of  the  creation  of  a  simple,  transparent  personal 
pension product. Potential providers demonstrated most support to the PEPP as regards 
its  potential  to  address  market  shortcomings  (enhanced  take-up  of  personal  pensions, 
increase  competition,  enhanced  market  access  by  providers,  cross-border  activity, 
innovation), even if national tax incentives would not be available..  

Accordingly, the preferred option is option 2, i.e. a regulatory statute for a pan-European 
personal  pension  product  creating  a  second  regime.  The  standardisation  of  key  product 
features  would  create  opportunities  for  providers  to  build  economies  of  scale  and 
facilitate  cross-border  provision.  Consumers  would  benefit  from  a  set  of  harmonised 
product  features,  greater  choice  and  adequate  protection  when  saving  for  retirement. 
Such a statute would not require existing personal products to adapt to a new regulatory 
environment  and  indeed  not  affect  existing  regimes.    As  it  would  be  favoured  by  both 
savers and providers, this option has the potential to result in market adoption in the long 
term.  Nevertheless,  the  tax  treatment  would  remain  an  important  factor  for  market 
adoption of the PEPP.  

4.2.  Key features of a regulatory statute establishing a PEPP  

This section first examines the key features of the five PPPs with the highest penetration 
index, which serve as a benchmark for assessing the appropriate features of a European 
personal pension product (PEPP).  

These  key  features  include  1)  the  distribution  to  PEPP  savers,  2)  rules  applicable  to 
investments, in particular the provider investment policy and the PEPP saver investment 
choice, 3) how to cater for switching between providers, 4) how to enable cross-border 
provision  and  portability;  5);  how  PEPP  savers  can  draw  funds  from  their  PEPP  on 
retirement (decumulation). 

Elements pertaining to national social, tax and labour laws would be left to national rules 
and are thus not covered in this section. Indeed, the PEPP framework seeks to harmonise 
only  a limited set of key features. Accordingly, conditions relating to  the accumulation 
phase (e.g. minimum and maximum contribution required, possibility to change the level 
of contribution, maximum age limit for the start of the accumulation phase, possibility to 
take  a  break  in  the  contributions,  possibility  for  the  employer  to  complement  the 
contribution by the individual) or the decumulation phase (e.g. minimum age to trigger 

38 

 
   
 
 
the  decumulation)  remain  regulated  at  national  level,  while  the  type  of  decumulation 
payments (annuities, lump sum), would still be part of the key features (see below).  

Key features of PPPs with the highest penetration index 

According to the  Better Finance  Study on Pensions Savings  –  The Real  Return86, most 
existing PPPs display a net return just above the inflation rate, whilst some even display 
negative net returns. Costs and charges are often considered as high and opaque. Retail 
investors,  who  receive  insufficient  information  on  the  performance  of  the  product,  are 
often  locked  in  long-term  contracts  with  no  possibility  to  switch  provider,  or  where 
allowed, limited choice between alternative providers.  

The  EPPF  study  identified,  among  thirty-six  personal  pension  products  surveyed,  five 
PPPs  with  highest  penetration  index87.  These  are  the  Riester  Rente  (Germany),  the 
Pension  Plan  (Belgium),  the  Ratepension  (Denmark),  the  Individual  personal  pension 
plan (Spain) and the State Sponsored Retirement Provision (Austria).  

The  PPPs  with  the  highest  volume  of  assets  under  management,  the  Riester  Rente,  are 
managing together EUR 224 billion.  

Common features are observed within these PPPs:  

- on distribution rules,  advice is available to PEPP savers online;  

- on investment policy, these PPPs include several investment options for PEPP savers 
and allow for changing investment options over the lifetime of the PPP88;  

- on cross-border portability and provision, no information on nationality or physical 
address is required, i.e. cross-border provision is possible; 

- on provider switching, domestic switching is possible without a tax impact. This is the 
case  for  instance  for  the  Riester  Rente  in  Germany,  while  another  German  PPP,  the 
Rürup Rente, does not include this feature but has a lower penetration index. Three out of 
the five PPPs with the highest penetration index allow for switching providers on a cross-
border basis, without a tax impact; 

- on decumulation options, four of them provide for more than one decumulation option 
(annuity, lump sum, etc). Actually, among the twelve PPPs with the highest penetration 
index out, those providing more than one decumulation option have a higher penetration 
index. 

86 

http://betterfinance.eu/fileadmin/user_upload/documents/Research_Reports/en/Pension_report_2016_
For_Web_-_Final.pdf 

87    The  criteria  for  high  penetration  include  the  percentage  of  assets  under  management  in  a  PPP  as 
compared  to  the  household's  financial  assets,  the  percentage  of  PPP  subscribers  as  compared  to  a 
Member  State's  population  and  the  dynamics  of  accumulation  into  the  PPP  as  compared  to  that  of 
accumulation into savings products in a Member State. 

88   On a broader basis, half of the twelve PPPs with highest penetration index include a default investment 
option; a majority of them include a de-risking investment option close to retirement and a guaranteed 
minimum return on investment. 

39 

 
   
 
                                                 
  
Options for the key features of a PEPP 

The  comparative  analysis  of  PPPs  with  highest  penetration  index  serves  as  a  point  of 
reference for the determination of the key feature of the PEPP. 

A synthesis of all policy options for the key and other features of the PEPP is presented 
in Annex 7. Finally, details on other features, such as costs and charges, the inclusion of a 
biometric guarantee, or the depositary function, are presented in Annex 10.  

4.2.1.  Distribution rules 

In  order  to  maximise  supply  on  an  EU-wide  basis,  a  PEPP  should  be  distributed  by 
different types of operators (banks and insurers, insurance agents and brokers, investment 
firms,  fund  managers  or  pension  funds)  and  through  a  variety  of  distribution  channels. 
Depending on the features of the product and the type of seller, the distribution of PEPPs  
could  be  subject  to  different  distribution  regimes.  This  raises  the  question  of  the  most 
appropriate  way  to  determine  the  applicable  distribution  rules  for  PEPPs,  in  particular 
with regard to the requirements for advice and disclosure of information. 

Three options may be considered: 

Policy option 

1. Existing EU sectoral 
legislation applies, or if absent 
national legislation 
2. Full stand-alone distribution 
regime 

3. Combination of PEPP-
specific add-on rules with 
application of sectoral rules 

Description 

Apply the existing EU sectoral rules pertinent to the distribution advice 
and information requirements and the legal characteristics of the PEPP 

Create  a  specific  regime  for  PEPP  in  the  form  of  a  full  stand-alone 
regime  covering  all  channels  and  aspects  of  distribution,  advice  and 
information requirements 
Create  a  limited  set  of  PEPP-specific  add-on  rules  that  would  be 
combined with the application of the existing sectoral rules 

In addition to the advantage of simplicity, Option 1 would establish a level-playing field 
between  PEPPs  and  national  pension  products  sold  by  the  same  distributor.  However, 
personal  pension  products  are  currently  to  a  large  extent  excluded  from  the  scope  of 
harmonised  EU  distribution  legislation89.  In  this  scenario,  the  distribution  of  PEPPs 
would  thus  be  essentially  subject  to  national  sectoral  law.  This  would  result  in  a 
patchwork of national distribution rules providing different standards on key aspects such 
as advice, disclosure of information or inducements. For PEPP savers, this would mean 
that for the same PEPP, depending of the type of provider and the Member State of sale, 
there could be different applicable distribution rules. In addition, Option  1 would entail 
varying degrees of consumer protection. 

89   Under Article 2(17)(c) of IDD, "pension products which, under national law, are recognised as having 
the  primary  purpose  of  providing  the  investor  with  an  income  in  retirement,  and  which  entitle  the 
investor to certain benefits" are excluded from the scope of the distribution rules for insurance-based 
investment  products.  Article  2(2)(e)  of  the  PRIIPs-Regulation  excludes  the  same  pension  products 
from the scope of that Regulation (see, however, the review clause in Article 33(2)). PEPPs would also 
not be covered by MiFID II since they would not qualify as financial instruments within the meaning 
of Article 1(1) in connection with points (1) and (2) of Article 4(1) of MiFID II. 

40 

 
   
 
 
                                                 
Under  Option  2,  a  specific  distribution  regime,  would  ensure  a  level  playing  field 
between the different groups of distributors selling a PEPP. However, a fully mandatory 
stand-alone  regime  might  be  seen  as  excessively  burdensome  for  both  providers  and 
supervisors,  and  incompatible  with  the  general  character  of  the  PEPP  as  a  flexible  and 
voluntary regime based on a limited set of common standards. Furthermore, a full stand-
alone  regime  would  result  in  unequal  treatment  between  PEPPs  subject  to  EU 
distribution rules and national pension products which would remain subject to national 
distribution  rules.  This  could  negatively  affect  the  take-up  of  PEPPs  and  the  choice  of 
PEPP savers. 

Option 3 would build on the applicable sectoral rules and provide a limited set of PEPP-
specific  add-on  provisions  on  key  distribution  features  like  advice  and  disclosure  of 
information  to  PEPP  savers.  These  targeted  add-on  rules  would  only  apply  to  such 
distributors  which  are  not  already  subject  to  comparable  rules  under  EU  distribution 
legislation  applicable  to  them  (such  as  IDD  for  insurance  distributors  or  MiFID  II  for 
investment  firms).  They  would  thus  ensure  the  necessary  degree  of  coherence  between 
sectoral  regimes  allowing  PEPP  savers  to  compare  PEPPs  from  different  distribution 
channels  and  make  an  informed  choice  with  the  certainty  that  they  get  a  minimum 
standard  of  advice  and  information.  At  the  same  time,  the  general  distribution  regime 
would still be determined by the applicable sectoral law, acknowledging the diversity of 
applicable regimes and ensuring, insofar as possible, a level playing field between PEPPs 
and national products sold by the same providers.  

The preferred policy option consists in the application of existing sectoral rules combined 
with a strictly limited set of PEPP-specific add-on provisions to strike the right balance 
between, on the one hand, the need for standardised  distribution rules setting standards 
for the specific features of PEPPs, and, on the other hand, a flexible regime that allows 
PEPPs to fit into existing distribution systems on an equal footing with national products. 
During the public consultation, providers and consumer organisations favoured building 
on  existing  harmonised  regimes  when  designing  distribution  rules  for  the  PEPP.  This 
option  is  also  consistent  with  the  EIOPA  technical  advice  which  favours  a  sectoral 
approach  and  non-advised  distribution  for  the  default  option.  EIOPA  considers  that  the 
existing  regimes  would  benefit  from  specific  add-ons  to  cater  for  specific  features  of 
pension products.  

The  add-on  provisions  would  essentially  cover  the  rules  for  advice,  where  the  PEPP 
framework would build on existing sectoral EU legislation requiring an assessment of the 
investor's  financial  situation  and  investment  objectives  with  the  possibility  to  buy  the 
PEPP in its low-risk default version without advice. They would further include rules on 
pre-contractual  product  information  and  inducements.  A  more  detailed  description  of 
possible add-on provisions can be found in Annex 8.  

In terms of effectiveness, this option is compatible with the objective of enhancing cross-
border provision and portability of the PEPP, since the existing providers would not be 
obliged  to  change  profoundly  their  distribution  rules  whenever  a  provider  or  a  saver 
decides to go across borders. This option also is cost efficient, as not involving the great 
costs  required  for  adaptation  to  entirely  new  rules,  and  is  coherent  as  it  relies  on  the 
existing EU rules, slightly adapted if necessary. 

41 

 
   
 
4.2.2. 

Investment policy 

(a) Investment options for PEPP savers  

In  view  of  the  long-term  retirement  objective  of  the  PEPP  framework,  the  investment 
options granted to the PEPP savers should be framed. These cover the elements allowing 
investors  to  make  an  investment  decision,  including  the  number  of  investment  options 
they can choose from, the need to introduce a default option, the moment when they can 
select and modify their preferred option, and finally the way to protect their investment 
over the PEPP lifetime.  

After  the  initial  choice  made  upon  the  subscription  of  a  PEPP,  the  PEPP  framework 
could  foresee  the  possibility  for  the  PEPP  saver  to  modify  this  choice  at  reasonable 
intervals, e.g.  once every five years, in order to offer sufficient stability to providers for 
their  long-term  investment  strategy whilst  at  the  same  time  ensuring  sufficient  investor 
protection.  Allowing  different  investment  options  ranging  from  a  more  defensive  to  a 
more yield-focused strategy builds on the five PPPs with the highest penetration index. 

In  this  regards,  different  techniques  ("risk-mitigation  techniques")  can  be  used  by  the 
provider  to  reduce  the  investment  risks  over  the  PEPP  lifetime  and  provide  capital 
protection.  The  'life  cycling  technique'  consists  of  automatically  adapting  the  portfolio 
mix  towards  safer  assets  once  the  PEPP  saver  nears  retirement.  Alternatively,  a  capital 
protection can ensure that the PEPP saver recoups his/her capital.  

Alternatively,  a  life  cycling  approach,  typically  offered  by  asset  managers,  provides  a 
chance for higher yield compared to a guarantee, typically offered by insurers or pension 
funds90.  A  capital  protection  of  a  purely  financial  nature  (i.e.  not  containing  e.g.  death 
coverage)  could  be  offered  by  any  type  of  providers,  including  banks91  or  investment 
firms.  

During the public consultation, individual respondents and consumer associations called 
for  a  simple  personal  pension  product  which  includes  a  default  investment  option.  The 
predominant  view  among  insurers  and  their  associations  was  that  a  default  investment 
option should provide simplicity and safety and a guarantee on capital and on returns was 
mentioned as a type of protection attached to the default investment option (this choice to 
be left to the consumer). Asset managers, on the other hands, stated their preference for 
other types of risk mitigation techniques, such as life cycling. 

The following options may consequently be envisaged:  

Policy option 

Description 

90   See  EIOPA  technical  advice,  p.  50:  "EIOPA  believes  PEPP  should  include  high  level  investment 
principles which PEPP providers must adhere to and a set of mandatory conditions on the investment 
options  where  each  PEPP  must  include  [..]  in  particular  for  the  default  investment  option,  an 
appropriate  investment strategy  that links  the  accumulation of  funds  via  PEPP  with  the  objective  of 
generating future retirement income. Such investment strategies typically entail a de-risking strategy 
or other relevant long-term investment strategies, or a guarantee, optimising future retirement income 
by  weighing  risks  and  returns  in  the  economic  and  environmental  context.  These  conditions  seek  to 
mitigate potential issues of loss and regret aversion." 

91   However  banks  would  not  be  well-placed  to  participate  as  providers,  as  the  type  of  Asset  Liability    

Management commitments implied by fund management are not easily compatible with bank balance 
sheets.  

42 

 
   
 
                                                 
1. Existing EU sectoral 
legislation applies, or if absent 
national legislation 
2. Type of investment protection 
mandated for the default option, 
left to providers for the other 
options 
3. Type of investment protection 
mandated for all investment 
options 

No requirements for risk mitigation. 

Require  a  specified  risk-mitigation  technique  for  the  default  option, 
such as a e.g. financial capital protection to at least recoup the capital 
invested.  The  statute  would  also  require  the  use  of  a  risk-mitigation 
technique to the choice of the provider for the other investment options. 
Require  a  specified  risk-mitigation  technique  for  all  investment 
options, such as a e.g. capital protection to recoup the capital invested. 

Under Option 1, the risk mitigation techniques are set a national level or by the provider. 
In case no such technique is included in the PEPP, the attractiveness of the PEPP among 
PEPP  savers  would  be  limited,  if  no  protection  were  provided  to  retails  investors. 
Moreover, in some Member States, products without any guarantee would not qualify for 
national tax incentives. This option appears as not protective enough for PEPP savers. It 
also  bears  reputational  risks  for  the  PEPP  framework,  in  case  of  bad  returns  on 
investments.  

Option 2 would provide additional consumer protection, encouraging further investments 
through PEPPs in the CMU context. The choice of a robust capital protection, such as a 
guarantee  or  life-cycling,  to  recoup  at  least  the  capital  invested  would  indeed  allow 
creating a simple product, in line with the retirement objective. Retail investors looking 
for  more  yields  could  opt  for  alternative  investment  options,  which  would  still  benefit 
from a risk mitigation technique. The PEPP framework would also benefit from a clear 
default option, which would be likely to increase its visibility with both PEPP savers and 
providers.  Finally,  regarding  the  cross-border  dimension,  standardisation  of  at  least  the 
default option would contribute to portability and cross-border provision.  

Option  3  would  not  contribute  to  establishing  a  level  playing  field  between  different 
types of providers. It would reduce the choice of investment options for PEPP savers, in 
particular for those willing to take on more risk in order to target a higher return.  These 
aspects could result in a reduced take-up of the PEPP, and thus fewer investments in the 
CMU context. On the other hand, cross-border development may be encouraged thanks 
to higher standardisation.  

Accordingly, Option 2 balances the need for investment protection with choice for PEPP 
savers  and  is  hence  recommended.  This  option demonstrates  effectiveness  in  achieving 
the objective to enhance the take-up of the PEPP by allowing great flexibility of choice 
for the savers. The option is cost efficient, since the greater costs associated with a robust 
capital  protection  could  be  avoided  if  the  investor  chooses  some  of  the  alternative 
investment  options.  Finally,  this  option  is  coherent  with  other  EU  policies,  and  thus 
politically feasible, as in line with existing EU financial rules to protect savers.  

(b) Investment rules for PEPP providers 

The following options are considered. 

Policy option 

Description 

Existing 

sectoral 
1. 
legislation  applies,  or  if  absent 

EU 

No  investment  rules  for  PEPP  providers.  They  would  follow  existing 
sectoral rules. 

43 

 
   
 
 
national legislation 

2.  Introduce  a  general  principle 
of prudent investment   

PEPP providers would be free to invest while respecting some general 
principle of prudent person or being subject to specific restrictions, e.g. 
on the use of derivatives. 

3. Introduce investment targets  

Introduce  granular  investment  targets  and  limits,  requiring  investment 
in  certain  long  term  illiquid  assets  and  in  some  liquid  assets  allowing 
for redeemability. 

Under  Option  1,  providers  continue  to  comply  with  existing  sectoral  rules  and  no 
additional  rules  would  be  introduced.  As  a  consequence,  providers  would  not  face 
additional  compliance  costs  and  no  PEPP  specific  investment  policy  would  have  to  be 
observed. However, in this option the least effect is achieved in terms of creating a level 
playing  field  between  providers  of  different  sectors,  since  different  rules  will  apply  for 
offering the same product by a different type of provider. Also, from a prudential as well 
as  a  customer  protection  perspective,  pursuing  this  option  offers  minimal  safeguards 
whereas  the  retirement  objective  and  the  general  reputation  of  a  product  require 
otherwise.         

Option 2 would consist of including the prudent person principle for PEPP providers, as 
in  Solvency  II92  or  IORP  II  for  insurers  and  occupational  pension  funds,  or  the  rules 
applicable in the respective sectoral legislation of the provider. This principle consists in 
particular of ensuring sufficient asset diversification, or investing in line with the long-
term  duration  of  the  liabilities  for  pension  products.  In  the  abovementioned  EU 
legislation,  the  prudent  person  principle  has  shown  that  it  can  deliver  positive  results 
when properly implemented by providers. Providers could be invited to take into account 
on  a  voluntary  basis  environmental,  social  and  governance  factors,  and  would  have  to 
disclose  it  to  PEPP  savers.  The  underlying  principle  would  be  that  the  provider  has  to 
know the risks of the assets in which investment is made and be able to demonstrate to 
supervisors  that  sound  risk  management  is  in  place.  Further  restrictions  could  ensure  a 
sound  investment  policy,  such  as  allowing  investments  in  derivatives  only  if  they 
contribute 
investment  risks  or  facilitate  efficient  portfolio 
management93. 

to  a  reduction 

in 

This option establishes a level playing field between different types of PEPP providers. 
In addition, it achieves equal level of customer protection with the existing harmonised 
regimes.  

Option 3 would increase the level of detail on investment rules by indicating targets for 
investments  in  e.g.  infrastructure.  Further,  some  absolute  limits  could  be  imposed  on 
riskier investments to ensure adequate consumer protection. Finally, in order to combine 

92   See Article 132 of Directive 2009/138/EC 
93   See  for  instance  IORP  II  Directive,  Article  19(e):  "investment  in  derivative  instruments  shall  be 
possible insofar as such instruments contribute to a reduction in investment risks or facilitate efficient 
portfolio  management.  They  must  be  valued  on  a  prudent  basis,  taking  into  account  the  underlying 
asset,  and  included  in  the  valuation  of  an  IORP's  assets.  IORPs  shall  also  avoid  excessive  risk 
exposure to a single counterparty and to other derivative operations". A further example can be found 
in  Article  50(1)(g)  of  Directive  2009/65/EC  of  the  European  Parliament  and  the  Council  of  13  July 
2009on  the  coordination of  laws,  regulations and administrative  provisions  relating  to  undertakings 
for collective investment in transferable securities ("UCITS V"). 

44 

 
   
 
 
                                                 
the  need  for  long-term  illiquid  investments  and  some  strictly  limited  redeemability, 
minimum liquidity requirements could be imposed, following the precedent of the ELTIF 
Regulation.  In  this  option,  the  highest  prudential  and  customer  protection  effect  is 
achieved  by  specifying  in  detail  the  risks  that  should  be  avoided.  On  the  other  hand, 
providers  and  probably  PEPP  savers  would  be  faced  with  higher  costs  on  the  product, 
affecting take up, mostly due to investment losses and compliance costs. 

Option  2  ensures  appropriate  balance  between  the  costs  and  return  of  the  product  and 
provides  consumer  protection;  it  is  hence  recommended.  By  introducing  the  prudent 
person  principle  for  PEPP  providers  this  option  is  effective  (since  the  PEPP  savers' 
increased  confidence  in  the  providers  would  enhance  the  take-up  of  the  PEPP),  cost 
efficient (reducing compliance costs as a result of the general freedom of PEPP providers 
to  invest)  and  coherent  with  other  EU  policies  encouraging  in  particular  consumer 
protection.  Finally,  it  is  politically  feasible,  as  it  is  in  line  with  EU  legislation  in 
application in the area of financial services.  

4.2.3. 

   Rules on switching providers  

Switching  is  defined  for  the  purpose  of  this  impact  assessment  as  changing  providers, 
within the same Member State or across borders. 

During the Public Consultation, respondents quoted high costs and charges by personal 
pension  providers  as  a  key  concern.  In  particular,  individual  respondents  to  the 
consultation insisted on being able to switch providers in order to not be locked in, for 
instance in case of bad net performance of the investments made by the provider. On the 
other hand, the majority of professional stakeholders, mainly insurers and pension funds, 
believe that switching  should  be  only  possible after  a  minimum lifetime of the product 
and  allowed  only  a  limited  number  of  times,  while  cost  and  fees  should  be  left  to 
competition  between  providers.  Less  are those  –  mostly  trade  unions  and  think  tanks  – 
considering  that  switching  should  be  possible  without  conditions.  They  usually  declare 
full support for consumer mobility and freedom for savers to consolidate their savings.  

Switching providers entails high costs for the provider as it undermines the possibility for 
illiquid investments, and may thus require some liquidity buffer in the PEPP, which may 
be  transferred  to  investors  in  the  form  of  fees  or  lower  performance.  One  study  in  the 
UK94  estimates  the  costs of  switching  from  1%  up  to  5%  of assets  under  management. 
Therefore, a first question is under which frequency and key conditions switching should 
be allowed. In order to provide sufficient illiquidity to the investment, a possibility could 
be to strictly frame the option to switch providers over the duration of the PEPP contract. 

A  second  question  concerns  the  cost  of  switching.  In  this  aspect  the  following  options 
can be examined: 

Policy option 

1. Existing EU sectoral 
legislation applies, or if absent 
national legislation) 
2. Switching without costs 
3. Switching with costs  
4. Cap on exit costs 

No requirements for switching. 

Description 

Allow switching at zero cost. 
Allow switching but do not regulate costs. 
Allow switching but cap the exit charge for providers. 

94   Source: www.boards.ie available at: https://www.boards.ie/b/thread/2057584106/2 

45 

 
   
 
                                                 
Option 1 would imply not addressing one of the basic concerns expressed by the PEPP 
savers and consumer organisations in the public consultation. As the PEPP is a retirement 
product, it would imply that PEPP savers may be locked in over a very long period if the 
provider does not allow switching on a contractual basis.  

Under Option 2, the prohibition of any exit costs (even covering nothing more than the 
actual expenses incurred by the provider) risks deterring providers from offering PEPPs, 
or  would  provide  incentives  to  charge  PEPP  savers  through  other  means  (e.g. 
administration fees). 

Option 3 may render the switching disproportionally burdensome (i.e. costly) for PEPP 
savers  and  in  practice  make  switching  so  expensive  that  it  would  not  be  possible  for 
them. 

Option  4  would  contribute  to  boosting  competition  whilst  at  the  same  time  protecting 
PEPP  savers  from  excessively  penalising  exit  charges  (thus  the  option is  coherent  with 
the general EU policies aiming at protecting PEPP savers). It is likely to foster take-up of 
PEPPs (being both effective with respect to this objective and cost efficient  – enlarging 
the customer base and thus reducing providers' costs), through a balanced capping of the 
exit  charge  in  order  to  attract  both  providers  and  PEPP  savers.  As  the  PEPP  would  be 
offered  by  a  wide  range  of  providers,  new  market  entrants  could  benefit  from  the 
opportunities  of  switching  provider.  For  PEPP  savers  this  would  allow  to  benefit 
effectively  from  the  competitive  advantages  of  a  wider  range  of  providers,  with  the 
possibility  to  monitor  and  compare  performance  and  if  necessary  change  provider.  In 
addition,  capping  charges  is  likely  to  encourage  cross-border  development  as  PEPP 
savers would also consider switching to providers established in another Member State. 
Finally,  it  appears  as  politically  feasible  as  long  as  the  capping  can  be  properly 
calibrated,  e.g.  through  principles  in  the  PEPP  framework.  Option  4  is  consequently 
recommended. 

4.2.4.  Cross-border provision and portability  

The  cross-border  dimension  of  the  PEPP  can  be  developed  at  the  level  of  the  provider 
(passporting) and at the level of the PEPP saver (portability). At the provider level, firms 
benefitting  from  a  passport  for  cross-border  services  (for  example,  under  MiFID  or 
Solvency II) would be able to supply PEPPs cross-border. Portability is meant here as a 
mechanism allowing the PEPP saver to keep the same provider when changing Member 
States  (ideally  with  the  right  to  transfer  accumulated  rights  between  national 
compartments of a same product, without having to liquidate the assets or keep open all 
the national compartments where past contributions have been made).  

During  the  Public  Consultation,  industry  stakeholders  identified  as  main  barriers  to 
portability the differences in the regulation of pension contributions and in tax rules, the 
language  and  informational  barriers,  as  well  as  the  exit  costs  for  personal  pension 
products. Academics considered that portability is not always compatible with the nature 
of the pension product for technical reasons.  

In this regard, the following options can be envisaged: 

46 

 
   
 
 
 
Policy option 

1. Existing EU sectoral 
legislation applies, or if absent 
national legislation 
2. Enhanced cross-border 
portability (allow transfer of 
assets between sections) 

No specific provision on cross-border portability and supply. 

Description 

Allow  continued  contribution  to  a  PEPP  in  the  context  of  mobility 
through  the  creation  of  a  new  national  compartment  if  the  investor 
moves  to  a  new  Member  State.  In  addition,  it  allow  transferability  of 
assets between sections within a PEPP. 

Option  1  leaves  without  a  regulatory  response  one  of  the  main  concerns  of  mobile 
workers in the context of PPPs – how to preserve the relationship with the provider while 
exercising  cross-border  mobility.  Under  this  option,  the  cross-border  dimension  of  the 
PEPP,  would  not  be  significantly  different  from  existing  national  personal  pension 
products,  either  for  providers  or  savers.  In  addition  to  not  addressing  the  cross-border 
objective  of  the  PEPP  initiative,  Option  1  may  also  result  in  a  limited  effect  on 
investments in a CMU context, as the PEPP would be directly competing with national 
products.  

Options  2  provides  more  PEPP  saver  portability  through  a  "section  approach":  each 
national  compartment  would  reflect  the  PEPP  product  features  selected  in  the  new 
Member  State  of  residence,  within  the  same  PEPP.  The  possibility  to  create  sections 
already exists today. The added value of the PEPP initiative would consist in putting on 
the  market  a  PEPP  with  certain  degree  of  standardisation,  which  could  contribute  to 
making  PEPPs  less  expensive  than  the  already  existing  personal  pension  products.  In 
addition,  the  PEPP  framework  would  streamline  the  exchange  of  information  between 
supervisors  to  allow  for  the  creation  of  new  sections,  and  the  information  provided  to 
PEPP  savers.  Thus,  the  supply  of  this  partially  standardised  PEPP  would  be  easier  and 
bring  about  economies  of  scale;  its  take-up  would  potentially  be  higher,  prompted  by 
better  recognition  and  confidence  on  the  part  of  customers.  It  is  the  partial 
standardisation  of  key  PEPP  features  that  is  expected  to  facilitate  cross-border  asset 
pooling  and  make  it  cheaper,  compared  with  the  present  situation.  The  national 
compartments of such a PEPP, marketed through a section approach, can be designed so 
as to qualify for national tax advantages.  

Under  Option  2  (see  illustration  below),  a  new  section  could  be  opened  following 
mobility.  The  PEPP  framework  could  include  rules  to  standardise  the  exchange  of 
information between the supervisors concerned and would ensure continuous information 
to the PEPP saver about the pension accumulated and to be accumulated in the home and 
host Member States. It would also allow the provider to build economies of scale. 

47 

 
   
 
   
 
 
In addition, enhanced portability is conferred to the product by allowing the transfer of 
assets between national compartments without obligation to liquidate the assets. It could 
mitigate the consequences of minimum duration requirements in various Member States 
which  hinder  PEPP  saver  take-up,  by  permitting  the  consolidation  of  assets  in  a  single 
section.  This  would  mean  for  the  PEPP  saver  one  single  sum  accumulated,  benefitting 
from one set of national requirements e.g. on when to start decumulation. Accordingly, 
this would come closer to achieving a simple and portable PEPP product, and thus reach 
the objectives  of cross-border  development and take-up. However the transfer of assets 
could entail significant costs pertaining notably to tax exit charges. Indeed, EET Member 
States  which  provide  exemptions  during  accumulation  but  not  decumulation  might 
impose an exit tax on an individual wishing to transfer his pension to another section, as 
it would imply losing on tax revenue over the decumulation period.  However, according 
to ECJ case-law, such taxation could infringe the principle of non-discrimination under 
Article  45  TFEU  and  Article  7(2)  of  Regulation  No  1612/68  where  it  results  in  an 
indirect  discrimination  of  migrant  workers.  The  Court  has  also  emphasised  that 
"provisions  preventing  or  deterring  a  national  of  a  Member  State  from  leaving  his 
country  of  origin,  and  thus  from  exercising  his  right  to  freedom  of  movement"  are  not 
compatible with the Treaty95.  

Accordingly, Option 2, which offers most possibilities for mobility both to providers and 
to PEPP savers, through the coexistence of national compartments or the transfer into a 
new compartment, is recommended. From the perspective of providers, it may result in 
some  added  complexity  with  the  task  to  create  compartments  and  ensure  transfers. 
However,  from  the  perspective  of  PEPP  savers  it  results  in  a  simpler  product  with 
continuity in a context of mobility and the guarantee to receive consolidated information 
about all national compartments in one piece.  

95   ECJ  C-269/07,  judgment  of  10.9.2009,  Commission  v  Germany,  point  107.  The  Court  explicitly 

rejected the argument of a loss of future tax revenue, see point 105. 

48 

 
   
 
 
 
                                                 
This  option  is  effective,  as  it  would  enhance  the  portability  of  the  PEPP  and  thus 
contribute  to  increased  investments  in  the  CMU  context.  It  is  cost  efficient,  as  it  may 
result in significant economies of scale. Finally, it is coherent with other EU policies, and 
politically feasible, as it contributes in particular to establishing a genuine single market 
to the benefit of PEPP savers.  

4.2.5.  Decumulation 

This section covers both the moment at which PEPP savers would make the choice of the 
decumulation options and the type of decumulation they could opt for.  

On the timing, PEPP savers could have to decide upon subscription of a PEPP about their 
pay-out choice (annuities, lump sum, other), but with a possibility to revise their choice 
once  every  five  years  to  allow  PEPP  savers  to  change  their  pay-out  choice  when  they 
near retirement.  

The  type  of  decumulation  –  annuities,  lump  sum  or  regular  withdrawals,  or  a 
combination  of  these  -  is  linked  to  the  beneficial  tax  treatment  provided  to  personal 
pension  products  in  certain  Member  States96,  where  annuities  may  not  be  legally  a 
mandatory  option,  but  tax  benefits  seem  to  be  linked  with  the  use  of  annuities  in 
decumulation. According to the Interim Report, for the purpose of using tax relief:  

  PPP  schemes  in  three  Member  States  (Austria,  the  Netherlands97  and  Slovenia) 

require annuities for out-payments in the decumulation phase; 

  PPP schemes in two Member States (Cyprus and Malta) require lump sum;  
  PPP schemes in thirteen Member States allow for both annuities and lump sums 

to benefit from tax incentives.  

In  yet  other  Member  States  the  out-payments  are  taxed,  whatever  the  decumulation 
option (annuities, lump sum, or a combination of both). 

On the other hand, according to the Interim Report, annuity is legally mandatory for nine 
PPP  schemes  in  six  Member  States  (Denmark,  Finland,  France,  Germany,  the 
Netherlands  and  Sweden).  However,  they  do  not  lead  to  tax  incentives,  apart  from  the 
Dutch PPPs. 

the  Public  Consultation, 

the  predominant  majority  of 

During 
the  professional 
stakeholders  advocated  in  favour  of  flexibility  in  the  decumulation  phase  to  be  able  to 
adapt  to  different  consumer  expectations  across  the  EU.  Insurers  and  occupational 
pension funds, typically provided annuities, pleaded in favour of annuities. Trade-unions 
and consumer representatives also favoured annuities, to secure income in retirement and 
avoid that assets be prematurely exhausted. Insurers also pointed to the fact that sharing 
biometric  and  financial  risk  during  the  pay-out  phase  (within  insurance  collective  and 
over  time)  increases  predictability  and  stability  of  retirement  income  streams  for 
consumers. 

EIOPA advised that, due to national specificities, standardization is best achieved in the 
accumulation phase and that consequently, decumulation is left flexible98. 

96   EPPF Study, Interim Report. 
97  In the Netherlands, however, annuities are legally the mandatory form of decumulation. 

49 

 
   
 
 
                                                 
The following options for the type of decumulation may be considered.  

Policy option 

1. Existing EU sectoral 
legislation applies, or if absent 
national legislation 
2. Mandate a decumulation 
option  
3.  Mandate flexibility of 
decumulation 

No requirements on the form of decumulation. 

Description 

Only  one  specific  decumulation  option  (e.g.  annuities)  would  be 
allowed. 
PEPP  providers  should  be  allowed  to  develop  all  possible  types  of 
decumulation. 

Option  1  allows  the  necessary  flexibility  to  feature  the  specificities  of  the  national 
personal  pension  markets.  However,  this  option  –  by  perpetuating  different  national 
approaches – would prevent providers from choosing between all available decumulation 
options.  

With a view to the specific retirement objective of the PEPP framework, Option 2 would 
entail  that  decumulation  be  exclusively  made  via  annuities.  This  would  ensure  that  in 
savers  would  obtain  direct  income  tax  incentives  in  those  Member  States  with  legal 
requirements limiting the out-payments to annuities. Furthermore, Option 2 would ensure 
that PEPP savers benefit from a regular income in the form of annuities over the whole 
retirement  period.  However,  such  option  implies  additional.  In  addition,  this  option 
would restrict the PEPP market to insurers, occupational pension funds99 as other types 
of providers cannot offer annuities. Such providers, such as asset managers or investment 
firms would either have to have an insurance license, or establish specific arrangements 
with insurers to be able to provide annuities. This might hinder the take-up of the PEPP 
by such providers. As a consequence, this option might limit supply of the PEPP.   

Under Option 3, whilst the determination of the moment triggering decumulation should 
be left to national legislation, in light of the variety of schemes and national preferences, 
as  well  as  in  order  to  establish  a  single  market  for  personal  pensions,  the  PEPP 
framework  would  allow  providers  to  offer  decumulation  via  annuities,  a  lump  sum  or 
other  forms  such  as  regular  withdrawals  ("drawdowns"),  hence  allowing  the  necessary 
flexibility to feature the specificities of the national personal pensions markets.  

Option  3  would  allow  providers  to  choose  between  all  available  decumulation  options 
and  is  hence  recommended.  This  option  is  effective  in  achieving  the  goal  of  enhanced 
take-up of the PEPP through increased flexibility and choice for PEPP savers. It is cost 
efficient as it allows providers to design their products in the most cost-effective way. It 
is  coherent  with  other  EU  policies,  and  politically  feasible,  as  it  preserves  enough 
flexibility for  Member States to  decide about which decumulation options they wish  to 
encourage.   

98     See EIOPA technical advice, p 54.  
99   Annuities require to calculate a monthly payment over the lifetime of the saver, implying a biometric 
component (based on e.g. mortality tables), and they can thus only be offered by insurers and pension 
funds. 

50 

 
   
 
 
 
                                                                                                                                                 
4.2.6.  Summary of the recommended PEPP key features – how would a PEPP function 

in practice ? 

The  PEPP  framework,  based  on  the  recommended  options  above,  would  allow  PEPP 
savers  to  benefit  from  simple,  transparent,  cost-effective  PEPPs.  PEPPs  would  be 
distributed  following  the  existing  sectoral  EU  legislation  (MIFID  II  and  IDD),  with 
specific add-ons in particular to encourage online distribution, to allow for non-advised 
sale for the low-risk default investment option, and to adapt information requirements to 
the nature of this retirement product, building on the PRIIPs Regulation. Retail investors 
would  be  able  to  choose  from  a  limited  set  of  investment  options,  all  with  investment 
protection  techniques  to  ensure  sufficient  safeguards,  with  the  default  option  as  a 
particularly  safe  investment  policy.  Providers  could  invest  in  various  types  of  assets 
provided  they  respect  the  prudent  person  principle.  The  PEPP  framework  would  allow 
PEPP  savers  to  switch  providers  regularly,  with  a  cap  on  exit  costs.  Retail  investors 
would be able to take their PEPP to other Member States, through contributing to a new 
national  compartment  or  by  transferring  their  assets  into  this  new  section,  subject  to 
costs. Finally, they could opt for several decumulation options and change their preferred 
option regularly in order to benefit from sufficient flexibility. 

This  set  of  key  features  mirrors  the  best  practices  observed  in  the  five  PPPs  with  the 
highest penetration index, as illustrated in the table below. 

51 

 
   
 
 
 
 
Table  4:  Comparison  of  the  PEPP  with  national  products  with  the  highest 
penetration index  

Coded name 

Belgium 

Denmark 

Germany 

Austria  

Spain 

PEPP 

PP 

RP 

Riester 

PZV 

IPP 

Investment policy 

Multiple investment strategy available 

The  product  allows  for  choosing  a  more 
investment 
aggressive  or  defensive 
strategy 

It is to possible to change the investment 
strategy  during  the 
lifetime  of  the 
product 

De-risking  investment  option  close  to 
retirement age 

The  product  provides 
protection: 

for 

capital 

The  product  could  provide  death 
coverage 

product 

The 
allowance 

provides 

disability 

× 

× 

× 

× 

× 

× 

y
g
e
t
a
r
t
s

t
n
e
m

t
s
e
v
n
I

k
s
i
r
n
r
u
t
e
r

f
o
n
o
i
t
a
g
i
t
i

M

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

optional 

optional 

optional 

X 

X 

X 

X 

X 

X 

allow
ed 

52 

 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Coded name 

Belgium 

Denmark 

Germany 

Austria  

Spain 

PEPP 

PP 

RP 

Riester 

PZV 

IPP 

Decumulation features 

Early out-payment possible 

There is a minimum age limit for 
the  start  of  the  decumulation 
phase 

No unique mandatory option 

× 

× 

× 

s
t
n
e
m
y
a
p
-
t
u
O

s
c
i
t
s
i
r
e
t
c
a
r
a
h
c

Provider switching  

c
i
t
s
e
m
o
D

g
n
i
h
c
t
i

w
s

s
r
e
d
i
v
o
r
p

s
s
o
r
C

r
e
d
r
o
b

g
n
i
h
c
t
i

w
s

s
r
e
d
i
v
o
r
p

Switching  providers  in  the  same 
MS without tax impact 

× 

Switching  providers  to  another 
MS without tax impact 

× 

Distribution features 

Banks 

× 

Insurance network 

Asset Managers 

l
e
n
n
a
h
c
n
o
i
t
u
b
i
r
t
s
i
D

× 

× 

× 

×  

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

× 

 X * 

NA 

× 

× 

X 

× 

× 

× 

× 

× 

Advice is available to individuals online 

× 

× 

× 

× 

× 

Cross border activity features  

e
c
i
v
d
A

Having  the  nationality  of  the  relevant 
Member  State  or  a  physical  address  in 
the Member State is not a requirement to 
buy the product 

Treatment of providers features 

Providers 
States/EEA are allowed to sell the PPP 

other  Member 

from 

× 

×  

× 

×  

× 

× 

× 

× 

 × 

* Limited circumstances such as exceptional case of hardship. 

53 

X 

X 

X 

X 

X 

X 

X 

X 

 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
In  addition,  the  PEPP  features  provide  additional  benefits,  on  a  pan-European  basis,  to 
those  observed  in  some  PPPs.  In  contrast  with  national  PPPs,  providers  would  benefit 
from  an  EU  passport  which  would  allow  benefitting  from  an  EU  market  for  personal 
pensions.  As  to  PEPP  savers,  the  PEPP  allows  for  more  choice  for  PEPP  savers  from 
more various types of providers. It also contains enhanced distribution rules, in particular 
to  ensure  adequate  pre-contractual  advice.  In  particular,  the  PEPP  framework  would 
provide full transparency on costs and fees, rules on disclosure of information, portability 
and a right to switch, with capped costs.  

In practice, regarding the implementation of the PEPP framework, a provider would have 
to  be  already  authorised  under  EU  rules  (e.g.  Solvency  II,  UCITS,  etc.)  to  provide  a 
PEPP. It would then seek a product authorisation to manufacture the PEPP from EIOPA, 
which  would  be  granted  in  coordination  with  the  other  European  Supervisory 
Authorities. EIOPA would verify the compliance of the product with the requirements set 
out  in  the  PEPP  statute,  as  regards  distribution,  investment  rules,  portability,  switching 
and  decumulation.  EIOPA  would  publish  the  list  of  authorised  entities.  Upon 
authorisation,  the  PEPP  manufacturer  could  then  distribute  the  PEPP  itself  or  have  it 
distributed by another undertaking authorised under EU rules.  

As  regards  portability,  a  single  PEPP  would  comprise  of  national  compartments.  Each 
compartment  would  accommodate  for  the  tax  critical  product  features  of  a  specific 
Member State allowing that contributions qualify for national tax relief.  

At  the  level  of  an  individual  PEPP  saver,  a  first  compartment  would  be  created  upon 
opening  of  the  account.  Each  time  the  PEPP  saver  changes  his  residence  to  another 
Member State, a new compartment would be created in his PEPP account.  

At the level of the PEPP scheme, the funds of the different compartments can be pooled 
in one large asset pool for the investment strategy. The PEPP would create the right for a 
PEPP saver to open a new compartment when exercising mobility.  

When  changing  residence  a  PEPP  saver  would  have  two  options  (see  above  in  section 
4.2.4).  Firstly, a  PEPP saver could maintain  multiple compartments. On retirement,  the 
PEPP  saver  would  have  different  income  streams  in  accordance  with  the  modalities  of 
each  compartment.  Alternatively,  a  PEPP  saver  could 
transfer  assets  between 
compartments  when  changing  residence,  resulting  in  one  single  income  stream  on 
retirement.  The PEPP would establish the right to transfer accumulated rights between 
national  compartments  of  a  same  product,  without  having  to  liquidate  the  assets.  
However, the transfer of assets could entail significant costs pertaining notably to tax exit 
charges.  For  PEPP  providers,  portability  would mean  that  provider  needs  to  administer 
for the tax treatment of compartments covering all Member States. The underlying assets 
can  be  pooled  across  all  compartments  and  PEPP  savers  and  would  allow  creating 
economies of scale. 

54 

 
   
 
 
 
  
4.2.7.  Tax treatment based on the recommended PEPP key features 

Taking into account the key features of the recommended PEPP option presented above, 
this section presents and analyses three options to deal with taxation: 

Policy option 

Description 

1. Baseline (national tax treatment) 

2. Favourable tax treatment   

3. PEPP specific tax regime 

The baseline scenario applies. The tax treatment would 
depend on product requirements set at national level 
The Commission would recommend to national 
authorities to provide national tax treatment to PEPPs 
even if they do not match all relevant national criteria 
Create a specific EU tax regime for the PEPPs 

Option 1: Baseline scenario – National tax treatment 

Under  this  option,  each  national  compartment  of  a  PEPP  would  implement  the  key 
features required by national tax rules for the domestic PPPs. Cross-border in-payments 
to  a  PEPP  would  be  paid  into  the  section  for  that  PEPP.  These  in-payments  paid  to  a 
foreign  PEPP  provider  would  qualify  for  the  same  tax  relief  as  in-payments  paid  to 
domestic  providers.  Yields  during  accumulation  phase  would  qualify  for  the  same  tax 
relief  as  yields  received  on  pension  products  from  domestic  providers.  ETT  Member 
States,  i.e.  Member  States  that  levy  a  yield  tax  on  the  investment  results  during  the 
accumulation phase of the contract should be able to continue to levy their yield tax also 
when  the  provider  is  established  in  another  Member  State,  since  the  foreign  provider 
would have to follow the same yield tax rules for the section for the yield tax Member 
State. Out-payments would qualify for the same tax treatment as out-payments received 
from domestic providers.  

Assessment 

tax 

the  national 

This  option would  not  require any  change  of  existing  legislation.  Where  necessary,  the 
Commission  would  enforce 
launching 
infringement procedures, if a Member State would not grant national treatment to PEPPs 
matching all relevant national tax criteria. Under the preferred approach for the key PEPP 
features,  as  described  above,  providers  would  be  able  to  adapt  most  of  features  to  the 
national  criteria  and  thus  benefit  from  the  tax  incentives  in  many  Member  States. 
Therefore,  although  cross-border  portability  or  provision  would  be  limited  under  this 
option100,  the  take-up  of  the  PEPP  should  be  encouraged  in  the  Member  States  where 
providers can reap the national tax incentives.  

treatment  principle  by 

However, this would not be the case in all Member States. For instance, under the semi-
defined approach, the PEPP framework would establish the possibility of switching, i.e. 
intra-Member  State  switching  of  provider  for  non-mobile  persons.  This  might  lead  to 
some Member States refusing to give national treatment to the PEPP, since their current 
PPP regimes do not allow switching. Indeed, regarding domestic switching, based on 49 
existing  PPPs,  under  three  PPP  schemes  in  three  Member  States  (Belgium,  Latvia  and 
Luxembourg)  domestic  switching  leads  to  immediate  taxation,  and  under  five  PPP 

100   Cross-border portability would be ensured in those cases where Member States currently offer cross-
border portability, on condition that national anti-abuse provisions were followed by the PEPP, as for 
domestic PPPs. 

55 

 
   
 
 
                                                 
schemes  in  four  Member  States  (Cyprus,  Germany,  Malta  and  Slovakia)  domestic 
switching is not possible101. As another example, the semi-defined approach of the PEPP 
would also define the investment policy options. It is possible that some Member States 
would  consider  the  PEPP  investment  policy  as  too  different  from  their  domestic 
investment  policies,  so  they  might  also  refuse  national  tax  treatment  to  the  PEPP.  The 
Commission  would,  on  a  case-by-case  basis,  assess  whether  any  refusal  of  national 
treatment was indeed proportionate and could possibly launch infringement procedures.  

Option 2: Favourable tax treatment: 

Under this option, Member States would be invited to provide the same direct income tax 
advantages  that  are  provided  to  qualifying  national  PPPs,  even  if  the  product  features 
under the PEPP framework do not match all relevant national criteria for tax incentives 
(see above the example of provider switching).  

Such  an  initiative  could  take  the  form  of  a  Commission  Recommendation,  adopted 
alongside the proposal for a legislative statute. The Commission would, three years after 
the entry into application of the statute, review the application by Member States of the 
Recommendation,  assess  the  situation  on  the  PEPP  market,  including  any  possible 
distortion  of  competition  between  the  PEPP  and  available  national  PPPs,  and  possibly 
consider new initiatives. 

Beyond  the  application  of  the  national  tax  treatment  principle  (See  Option  1  above),  a 
Recommendation could invite Member States to extend national tax incentives to PEPPs, 
even  if  the  PEPP  features  do  not  match  all  national  criteria.  A  Recommendation  could 
also invite Member States to consider aligning some national tax criteria. 

Assessment  

Following  EU-level  definition  of  certain  features  of  the  product  and  on  the  condition 
that, following the Commission Recommendation, Member States would provide on 
a voluntary basis national tax  incentives  to  the PEPPs  even  if they do not  match the 
national criteria, this option would put the PEPP at equal footing with national PPPs.  

Over  a  long  term  perspective,  gradual  market  adoption  would  contribute  to  more 
investments  into  a  PEPP  as  compared  to  the  baseline  scenario,  substituting  to  some 
extent other household financial assets (e.g. deposits, investment products or PPPs). This 
would contribute, as one project among others, to the development of a CMU.  

However,  the  implementation  of  Commission  Recommendations  in  national  law  is 
subject to unilateral decision by each Member States and there is no such precedent in the 
area  of  direct  taxation.  Only  interpretative  Communications  based  on  Court  case-law 
have so far impacted on Member States' direct tax rules102.  

The  fiscal  benefits  are  deemed  very  important  by  all  types  of  organisations  who 
responded to the public consultation, representing different sectors. The market seems to 
organise  itself  around  tax  benefits  –  a  powerful  tool  to  incentivize  citizens  to  save  for 
retirement. Favourable tax treatment by means of a specific PEPP tax regime is preferred 

101   EPPF Study, Interim Report. 
102  See,  for  example,  the  Pension  Taxation  Communication  of  2001  and  the  Dividend  Taxation 

Communication of 2003. 

56 

 
   
 
                                                 
by  market  participants.  Nevertheless,  market  participants  showed  interest  in  the  PEPP 
even without tax incentives.  

Option 3. Specific tax regime: 

Under  this  option,  a  specific  tax  regime  would  be  created  by  legislation  at  EU  level, 
granting  a  specific  tax  advantage  to  PEPPs  across  the  EU;  thus,  in  different  Member 
States  higher  or  lower  than  the  tax  advantages  granted  to  qualifying  national  pension 
products. This option, ideally combined with a PEPP of which all tax-critical features are 
defined at EU level, would be designed as part of the same or of a separate EU initiative.  

Within this option, a relevant sub-option consists of fully harmonised PEPP key features 
with  a  specific  limited  tax  advantage  which  would  be  inferior  to  the  national  tax 
incentives.  

Assessment  

Under this option, PEPP savers would benefit from tax incentives for PEPPs throughout 
the EU. However, the tax incentives could be defined independently of the tax incentives 
already applicable for existing PPPs in Member States. New or additional tax incentives 
could  be  introduced  in  those  Member  States  where  they  are  currently  absent103  or 
insufficient,  stimulating  further  the  completion  of  the  CMU  and  the  creation  of  a 
simple, transparent,  high-quality PEPP by standardising  its key features. Option 3 
would also facilitate cross-border provision of a PEPP and confer full portability to the 
product.  Among  the  three  options,  this  option  would  best  contribute  to  achieve  the 
abovementioned objectives as no flexibility of the PEPP features would be necessary. In 
particular, in the sub-option presented above, the PEPP would be able to reap the benefits 
of  full  harmonisation  of  its  key  features,  even  if  competing  with  exiting  PPPs  with  an 
inferior tax incentive would result in more limited uptake.  

However, establishing a harmonised tax treatment requires unanimous agreement among 
Member  States.  The  prospect  of  potential  lower  tax  revenues  in  at  least  some  Member 
States – unless calibrated at a level higher than the highest tax advantages in any Member 
State  –  or  the  potential  need  to  create  a  specific  tax  regime,  seriously  jeopardizes  the 
potential of success of any such initiative. Indeed, during the consultative meeting with 
Member  States'  tax  experts  on  2  March  2017  several  Member  States  stated  their 
opposition to any such harmonisation.  

Comparison of policy options  

EFFECTIVENESS 

EFFICIENCY 

COHERENCE 

POLITICAL 
FEASIBILITY 

 (cost-
effectiveness) 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

Policy  
option  

Increase 
in 
investment 
the  EU  and 
the 
complete 

Enhance 
product 
features on 
the personal 

Enhance the cross-
border provision and 
portability of personal 

103  According to the consultant's research (EPPF Study), the only PPP scheme in Sweden is without any 

tax relief (i.e. it is a "TTT" scheme).  

57 

 
   
 
 
 
 
 
 
 
                                                 
 
CMU 

pension 
market 

pension products 

Option 1 
No policy change – 
National 
tax 
treatment 
Option 2 
Favourable 
treatment 

tax 

Option 3 
PEPP  specific  tax 
regime 

0 

+ 

 0 

+ 

0 

+ 

++ 

++ 

++ 

0 

+ 

- 

0 

0 

0 

+ 

++ 

- - 

Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

Given  the  importance  of  the  tax  element,  as  documented  in  the  EPPF  study,  option  3 
would  be  from  an  economic  point  of  view  the  most  effective  option  in  reaching  the 
objectives of this initiative.  

However,  its  political  feasibility  seems  at  the  current  juncture  rather  uncertain.  On  the 
contrary, option 2 is politically feasible as it does not require unanimity among Member 
States:  only  Member  States  willing  to  extend  the  benefits  of  national  tax  incentives  to 
PEPPs even if they don't match all national criteria would do so. A staggered approach is 
also feasible, whereby Member States progressively apply Option 2 over the years.  

Regarding  options  1  and  2,  in  spite of  the  uncertainty  about  how  many  Member  States 
would be ready to follow a tax recommendation, we would recommend following option 
2. Indeed, granting favourable tax treatment in a number of Member States could only be 
beneficial for the development of the PEPP, in addition to only applying the national tax 
treatment principle (option 1). The related PEPP proposal would thus be accompanied by 
a  tax  recommendation  in  order  to  maximise  the  development  of  the  PEPP  over  the 
coming years. 

On the basis of the PEPP key features and recommended tax approach, we summarise in 
the  Box  below  why  the  PEPP  would  be  a  simple,  transparent,  cost-effective  and 
innovative product, in particular as compared to existing PPPs. 

Box 3 - The PEPP: a simple, transparent, cost-effective and innovative product 

Simple 

For PEPP savers 

- Up to five investment options only; 
-  Default  investment  option  mandatory,  aiming  at  ensuring  that  at  least  the  invested 
capital is recouped; 
- Enhanced portability provisions: the PEPP saver is able to keep the same provider when 
changing Member State and to receive consolidated information about all contributions 
across the EU; 

For PEPP providers 

-  A  simple  set  of  rules  thanks  to  standardisation  focusing  on  distribution,  consumer 
information, investment options and decumulation; 

58 

 
   
 
 
 
 
 
 
 
 
- One single product authorisation for the whole EU; 
-  Online  distribution  is  made  the  default  distribution  channel:  providers  can  enter  the 
PEPP market without a network of branches; 
-  Streamlined  exchange  of  information  between  national  authorities  when  the  PEPP 
provider distributes the PEPP in a new Member State; 

Transparent 

For PEPP savers 

-  Robust  pre-contractual  information  through  a  PEPP  KID  including  full  disclosure  on 
costs, and  
- Regular information during the accumulation and decumulation phases; 

For PEPP providers and national competent authorities 

- Central public register; 

Cost-effective 

For PEPP savers 

- Full transparency on costs, right to switch providers and cap on switching costs bring 
costs down for PEPP savers; 
- Increased number of potential providers, hence increased competition (asset managers, 
banks, occupational pension funds, MIFID firms and insurers); 

For PEPP providers 

-  Economies  of  scale  possible  thanks  to  standardisation;  online  information  and  online 
distribution; 
-  Possibility  to  develop  larger  assets  pools  thanks  to  standardisation  and  a  single  pan-
European market. 

Innovative 

For PEPP savers  

-  Easy  access  to  PEPPs  through  online  information  and  online  distribution,  including 
advice, as the default distribution channel 

5.1. 

Overall impact of the preferred option 

5.  OVERALL IMPACTS   

Under  the  preferred  option,  providers  including  insurers,  pension  funds,  investment 
firms, banks and asset managers, authorised under EU sectoral regimes, would be able to 
design  Pan-European  Personal  Pension  Products  (PEPPs)  based  on  a  set  of  common 
features, taking into account national differences due to tax critical features. To that end, 
providers  would  create  national  "sections"  of  the  product,  complying  with  tax-critical 
features for each Member State where they intend to operate.  However, they would be 
enabled to pool assets and benefit from increased economies of scale due to the common 
product  features  such  as  the  default  investment  option  and  an  easier  way  of  providing 
services across borders, thanks to common information requirements for instance. It can 
be expected that more asset managers would enter the personal pension market currently 
dominated by insurers. Furthermore, it can be expected that providers would increasingly 

59 

 
   
 
 
 
 
 
 
 
 
 
 
 
 
operate  on  a  more  cross-border  basis  and  doing  so  more  effectively  benefitting  PEPP 
savers, especially in smaller jurisdictions with limited take-up and product supply.  

The  PEPP  would  consist  of  a  limited  set  of  investment  options  including  a  prudent 
default  investment  option  which  should  cater  for  a  majority  of  PEPP  savers.  The 
investment rules would contain risk-mitigating techniques, which would be specified for 
the default option (e.g. capital protection to recoup at least the capital invested) and left 
to  the  choice  of  the  provider  for  the  alternative  investment  options  (e.g.  life  cycling, 
guarantees). The product would include common information requirements providing for 
good  information  before  signing  up  to  the  product,  and  investors  would  be  informed 
about key performance indicators of the PEPP throughout its lifetime.   

the  PEPP  would  provide  an  additional  choice 

to  develop 
For  PEPP  savers, 
complementary saving for retirement. They would benefit from improved pre-and post-
contractual information and they would be enabled (by limits to exit fees) to switch PEPP 
provider, if for example they consider the performance insufficient.  

PEPP  Savers  would  be  enabled  to  choose  among  different  types  of  providers  and 
compare PEPPs with any national personal pension product. They would benefit from the 
increased types  of providers, as  asset  managers, pension funds  and banks could enter  a 
market dominate traditionally by insurers. This could create more competition in terms of  
lower costs and fees, increased choice in investment options and possibility could affect 
returns.  Due  to  the  mandated  possibilities  of  switching  provided  by  the  statute,  they 
would  effectively  benefit  from  the  increased  competition.  A  positive  effect  can  also  be 
expected for the self-employed who do not contribute in such capacity to a state-based or 
occupational  pension.  The  PEPP  could  complement  the  existing  national  personal 
pension products by offering more choice and increase trust of PEPP savers, through its 
set of common features. Mobile workers would benefit from this initiative as it would be 
possible  to  save  for  retirement  with  the  same  provider  in  so  far  as  the  provider  offers 
sections of the PEPP for different Member States. 

The  PEPP  market  potential  is  currently  estimated  at  EUR0.7  trillion  and  relies  on  the 
favourable  assumption  that  the  PEPP  would  be  granted  the  same  tax  reliefs  as  the 
national  products  in  all  Member  States  (see  also  section  below),  which  could  possibly 
occur in the long term, over the period 2020-2030.  This projection will also depend on 
the  practical  supply  of  the  product  and  take-up  by  pension  savers.  Depending  on  the 
number of Member States granting favourable tax treatment, and the level of possible tax 
incentives, the penetration of the PEPP could be slower. 

The  PEPP  market  can  be  expected  to  develop  progressively  with  the  potential  to  set  a 
benchmark for personal pension products. If successful, the PEPP could reach its market 
potential over ten years.  

5.2. 

Macro-economic impacts  

This  section  outlines  the  potential  macro-economic  impacts  to  be  expected  over  the 
medium/long  term  after  the  introduction  of  the  PEPP  first  by  estimating  the  likely 
increase in market-based104 funding following the personal pension market development 
after the introduction of the PEPP and secondly by identifying other positive impacts on 

104   For an explanation of marked-based funding see section E of  Annex 4. 

60 

 
   
 
                                                 
the  welfare  of  individual  households  based  on  a  review  of  the  relevant  literature.  In 
particular the analysis shows that: i) on the supply side (see below) a successful take-up 
of the PEPP will contribute to half of the expected growth of the personal pension market 
in the EU by 2030 and will increase capital markets by up to 2% with tax incentives and 
ii)  on  the  demand  side  (see  below)  the  tax  relief  for  private  pension  products  is 
considered  to  be  a  key  element  to  make  them  attractive  and  superior  alternatives 
compared to more traditional savings methods. 

Supply side (increase of market-based funding for the EU economy) 

The  personal  pension  product  markets  are  expected  to  develop  from  the  current  level  - 
estimated at around EUR 0.7 trillion - to either EUR1.4 trillion (which corresponds to the 
baseline  scenario)  or  EUR2.1  trillion  (with  the  extra  amount  coming  from  the  PEPP). 
Assuming  that  no  substitution  effects  between  the  former  and  the  latter  take  place,  the 
PEPP would then account for around a half of a potential increase of the total market, the 
other half coming from growth dynamics involving the currently sold national products. 
As  also  explained  in  section  A  and  B  of  Annex  4,  as  tax  incentives  are  the  key 
explanatory variable in  the regression analysis performed, it is  hence a key assumption 
behind  the  estimated  PEPP  market  of  EUR0.7  trillion.  Moreover,  the  95%  confidence 
interval of the market potential is estimated between EUR0.4 trillion and EUR1.0 trillion 
using  the  same  confidence  interval  of  the  fiscal  generosity  variable.  Incidentally,  the 
PEPP market without tax incentives could be expected to be quite low and would see a 
quite  moderate  overall  take-up  as  rationally  it  can  be  expected  only  in  those  member 
states  where  tax  incentives  are  not  so  material  and  where  PEPP  better  product  features 
can be expected to compensate for the loss of tax benefits.   

In  order  to  quantify  the  extra  market-based  funding  available  to  the  EU  economy 
following  the  introduction  of  the  PEPP  (in  case  of  the  mid-point  estimate  of  EUR0.7 
trillion), three possible  assets allocations were  considered. These are described in  more 
detail  in  section  C  of  Annex  4  which  also  explains  the  rationale  behind  considering 
different  assets  allocations  and  the  methodology/sources  used.  The  results  of  the  three 
scenarios  are  shown  below  in  table  1.  The  difference  among  the  total  amount  to  be 
invested in a given asset class is then dependent on the actual investment strategy put in 
place by the PEPP providers: for example, investments in equity would reach EUR 231 
billion  with  the  current  asset  allocation  (central  portfolio)  with  an  estimated  range 
between  EUR  175  billion  (conservative  portfolio)  and  EUR  280  billion  (growth 
portfolio).  These  figures  could  also  be  found  in  the  right  part  of  the  table  where  an 
average  of  the  three  scenarios  is  also  provided  by  giving  equal  chance  to  the  three 
scenarios. 

Table  5:  market-based  funding  for  different  asset  classes  from  PEPP  in  3  different  scenarios  and  estimated  average, 
lower bound and upper bound values 

61 

 
   
 
 
 
 
 
 
Finally table 5 below compares the estimated PEPP related investments in different asset-
classes  with  the  current  levels  observed  in  the  EU  economy  as  of  December  2015  (see 
also section E of Annex 4).  

Table 6: PEPP related extra market-based funding and comparison to current values in the EU economy 

The  introduction  of  the  PEPP  is  hence  expected  to  provide  to  some  extent  a  limited 
contribution  to  capital  markets  and  to  support  non-financial  corporations  with  their 
financing needs especially in the form of bonds and listed equity. The combination of the 
two is expected to contribute, albeit in a limited way, to jobs and growth (as explained in 
section 2.1 – underdeveloped capital markets).  

Moreover,  so  as  to  further  illustrate  the  order  of  magnitude,  the  estimated  amount  of 
EUR 14 billion in unlisted infrastructures potentially coming from PEPP (as reported in 
Table  6  under  the  average  column)  corresponds  to  around  5%  the  total  amount  of 
additional  funding  the  European  Fund  for  Strategic  investments  (EFSI)  is  expected  to 
generate  in  infrastructures  projects  and  SMEs.  As  for  the  estimated  average  amount  of 
EUR  28  billion  in  alternative  investments  (as  reported  in  Table  6  under  the  average 

62 

Extra market-based funding from PEPP (EUR Billion)AverageLower boundUpper boundEquity33%23125%17540%280229175280 -Listed equity29%20322%15434%238198154238 -Other equity4%283%216%42302142Debt securities55%38563%44146%322383322441 -Sovereign Bonds34%23840%28020%140219140280 -Financial Bonds12%8413%9114%98918498 -Other bonds9%6310%7012%84726384Other investments12%8412%8414%98898498 -Real estate5%354%286%42352842 -Alternatives4%283%215%35282135 -Unlisted infrastructure2%142%142%14141414 -Cash1%73%211%712721Total100%700100%700100%700700Central portfolioConservative portfolioGrowth portfolioPublic capital marketsDecember 2015(EUR Billion)Corresponding PePP asset-classIncrease(EUR Billion)Increase(%)Increase(EUR Billion)Increase(%)Increase(EUR Billion)Increase(%)Stocks10,445listed equity1981.9%1541.5%2382.3%Bonds23,775debt securities3831.6%3221.4%4411.9%Total public capital markets34,220listed equity & debt securities5811.7%4761.4%6792.0%Users of funding (financial liabilities)December 2015(EUR Billion)Corresponding PePP asset-classIncrease(EUR Billion)Increase(%)Increase(EUR Billion)Increase(%)Increase(EUR Billion)Increase(%)Non financial corporation - quotes shares6,927listed equity1982.9%1542.2%2383.4%Non financial corporation - other equity10,878other equity and alternatives580.5%420.4%770.7%Non financial corporation - bonds1,895other bonds723.8%633.3%844.4%Governments15,347sovereign bonds2191.4%1400.9%2801.8%Average Lower boundUpper bound 
   
 
 
 
 
 
 
 
 
 
column), this also corresponds to 5% of the total market value of European private equity 
funds105 with assets at EUR 564 billion in December 2015. 

As  mentioned,  the  analysis  was  carried  out  on  the  mid-point  estimate  of  PEPP  assets 
under management potential i.e. on EUR0.7 trillion and shows that the impact on CMU 
is  positive  although  limited.  The  impact  on  CMU  is  expected  to  be  lower  for  the 
minimum  of  the  95%  confidence  interval  (where  PEPP  is  expected  to  reach  EUR0.4 
trillion) or in case PEPP is at competitive disadvantage vis-à-vis national products when 
it comes to tax treatment (where PEPP superior features would not be able to compensate 
for no tax incentives and hence would result in a low take-up).  

Demand side (other possible impacts on the capacity to better manage 

financial risk related to retirement) 

Whereas the previous section took the perspective of the total economy's balance sheet, 
the present section takes the view of financial risks of private households that need to be 
managed/hedged.  From  the  perspective  of  the  total  economy,  PEPPs  benefits  market-
based  funding  channels  (in  contrast  with  bank-based  intermediation  of  funds).  From  a 
household perspective, PEPPs facilitate a better diversification of assets.  

The  need  for  a  broader  set  of  risk  management  tools  in  the  context  of  private  pension 
liabilities  has  been  widely  acknowledged  in  the  literature  already  before  the  crisis  of 
2007/8 and in international policy fora106. Ever since, as developments have heightened 
further the financial impact of demographic changes, there have been increasing calls for 
a  more  proactive  risk  management  approach  by  governments  towards  risks  faced  by 
households, in particular related to retirement. This section briefly discusses how PEPPs 
compare as a risk management tool from a household perspective.  

The  findings  in  the  literature  underline  the  relevance  of  the  tax  relief  for  private 
pension  products  to  become  attractive  alternatives  to  more  traditional  savings 
methods. This implies highly different relative weights of the various risks and impacts 
on  savings  discussed  in  table  4.  Specifically,  private  pension  products  can  only  be 
expected to deliver effective protection against the four risk categories discussed there if 
significant  amounts  of  savings  have  been  allocated  to  such  products.  These  amounts 
depend  mostly  on  the  extent  of  the  tax  relief.  In  terms  of  policy  conclusions  it  follows 
that  fiscal  policy  can  ensure  a  better  protection  for  households  against  financial  risk  in 
the context of retirement.  

Table 7: How PEPPs compare to alternative savings methods in their capacity to help manage  financial risk in 
the private pension context 

PEPPs compared to: 

LIFE 
INSURANCE 

DEPOSITS 

BONDS 

Investment 
FUNDS 
(active or 
passive) 

REAL 
ESTATE 

SHARES 
(listed or 
private) 

+/- 

- (<100k) 

- (PEPP without 

++ 

+/- 

++ 

A: How PEPPs 
compare across 
alternative 
methods for a 
particular type of 
risk 
+ 

RISKS/IMPACTS 
on savings 
Loss of capital, 

105   Private equity refers to the provision of equity capital to non-quoted companies with significant growth potential. Private equity 
funds  invested  in  about  5  000  European  firms  in  2015,  86%  of  them  being  SMEs  -  statistics  of  Invest  Europe  are  based  on 
information of over 1 200 European private equity firms, representing 91% of capital under management in Europe 

106   On new instruments and methods see Groome et al. (2006), Draghi et al. (2004) and literature cited there, Gray et al. (2010), as 
well  as  Merton  et  al.  (2013);  see  Visco  (2005,  2006) on  the  policy  discussion;  complete  references  are  listed  in  section  C  of 
Annex 4. 

63 

 
   
 
 
 
 
 
 
                                                 
risks w.r.t. 
economic or 
financial cycle107 

Inflation108 

+/- 

Lock In109 

Risks w.r.t. 
financial literacy 
& product 
design110 

Tax relief111 

B: How PEPPs 
compare to any 
particular 
alternative method 
across risk 
categories 

+ 

+ 

+ 

+ 

+/- (>100k) 

capital 
guarantee) 
+/- (PEPP with 
capital 
guarantee) 

++ 

++ 

-- 

++ 

+/- (1) 

+/- (1) 

++ 

++ 

+/- 

++ 

+/- 

+/- 

+/- 

+ 

+ 

- 

+ 

++ 

+/- 

++ 

+/- 

++ 

+/- 

++ (2) 

++ 

+/- 

+ 

+ 

+/- 

+/++ 

Notes: (1) This assessment assumes that PEPPs provide for risk sharing in at least two ways: (i) investment in equity is 
fully  diversified  with  respect  to  country-  and  sector-idiosyncratic  risks;  (ii)  a  considerable  share  (between  45%  and 
65%)  is  invested  in  debt  securities,  in  such  a  way  that  countries'  specific  risks  are  fully  diversified;  see  also  the 
numerical simulation in the previous section. (2) This assessment holds only if tax advantages granted to a PEPP are 
similar to those discussed in the literature.  

The discussion, also reflecting findings in the relevant academic literature, is summarized 
in Table 7 and set out in more detail in section D of Annex 4.  

Overall, a PEPP scores well against main alternative savings methods (column A). It also 
scores well against each single alternative across the different types of risk (row B at the 
bottom  of  the  table).  PEPPs  on  many  accounts  have  superior  risk  hedging  features 
compared to other financial assets, as well as compared to real estate which continues to 
be the favourite method of saving for retirement of European households. The real estate, 
however, also makes retiring households vulnerable to large swings in the value of real 
estate assets.   

5.3. 

Small and medium-sized enterprises 

The initiative is expected to expand the range of providers, including not only insurance 
companies (currently the  major  players  in  personal pensions) but  also investment firms 
and asset managers, as well as specialised pension funds. It would tap additional private 
savings  to  channel  them  to  productive  investments  on  capital  markets,  as  indicated 
above.  In  addition,  as  investment  rules  would  allow  investments  in  various  types  of 
assets, many providers could provide – at least in part - additional sources of finance to 
SMEs, who represent the bulk of the number of companies and value added in the EU112.  

Furthermore, providers such as asset managers are often SMEs. As a consequence of this 
initiative, they could be positively impacted as this new business would open for them. 

107   Kaliciak et al. (2016); Gompers/Metrick (2001); Reinhart/Rogoff (2009). 
108   Feldstein (1981) discusses private pension performance with respect to inflation risk 
109   Sexauer/Spiegel (2013) 
110   On  financial  literacy  see  Lusardi/Mitchell  (2014)  for  a  comprehensive  overview;  Cochrane  (2013)  on  product  design;  Varian 

(2010) on online distribution 

111   Feldstein (1981) discusses the importance of tax relief for the relative performance (RoI) of private pension funds 
112   Source: European Commission, 2016 SME Performance Review, Annual Report: "Across the EU28, 
the contribution of SMEs in the non-financial business sector is considerable. SMEs make up 99.8% of 
all  enterprises,  57.4%  of  value  added,  and  66.8  %  of  employment."  Available  at: 
http://ec.europa.eu/growth/smes/business-friendly-environment/performance-review-2016_en.   

64 

 
   
 
 
 
 
 
 
 
                                                 
5.4. 

 Administrative burden 

Also,  a  positive  effect  can  be  expected  for  the  self-employed  who  do  not  contribute  in 
such capacity to a state-based or occupational pension.  

As  the  PEPP  is  a  new  product  category  added  to  the  existing  portfolio  of  products 
provided  by  insurers,  pension  funds,  investment  firms,  asset  managers  and  banks,  all 
subject  to  regulatory  oversight  by  national  competent  authorities  under  existing 
regulatory  frameworks,  this  could  create  an  additional  administrative  burden.  The 
administrative  burden  would  depend  on  the  supervision  of  PEPP  providers  at  national 
level.  Public  authorities  might  impose  new  reporting  requirements  on  providers  as 
regards  the  provision  of  PEPP  and  in  particular  to  monitor  cross-border  distribution  of 
PEPPs.  This  administrative  burden  should  be  proportionate  to  the  risks  of  providing 
PEPPs on a cross-border basis and would allow market monitoring ensuring appropriate 
supervision and contributing to  consumer protection.  To this end, the PEPP framework 
could include some principles on reporting to supervisory authorities. 

5.5. 

EU budget 

The  preferred  policy  options  could  have  some  implications  for  the  budget  of  the 
European  Union.  Possible  additional  tasks  arising  for  EIOPA  or  ESMA  in  particular, 
such  as  the  authorisation  of  PEPP  products,  the  development  of  additional  guidance  or 
and a central register for all authorised PEPPs, would require an increase in resources as 
well as certain operational investments. These costs are estimated at approximately EUR 
1.000.000  in  2019  and  include  a  one-time  investment  for  operational  matters  and  will 
stabilise around EUR 1.200.000 by 2021. Under the current co-financing arrangements, 
40% of this funding will be included in the EU budget and will, as such, not go beyond 
what is foreseen in the current multi-annual financial framework running until 2020.  

Social impacts 

This initiative on pan-European personal pensions would have potentially positive social 
externalities  in  sofar  as  it  could  improve  the  take-up  of  personal  pension  products.  An 
increase  of  take-up  of  personal  pensions  over  time  would  have  as  a  postive  side  effect 
that it would increase the portion of the population with adequate income in retirement. 
In particular, it would provide additional tools to the self-employed and mobile workers 
save  for  retirement  by  means  of  personal  pension  products.  The  positive  social  impact 
would be higher in Member States where currently there is a limited choice and limited 
take-up of personal pension products.  

Impact on third countries  

The  proposal  does  not  create  any  new  obligations  concerning  the  relations  with  third 
countries. Consequently, no impact on third countries is expected.  

Environmental impacts 

No  significant  environmental  impact  is  expected,  although  an  encouragement  for 
providers to voluntarily take  into  account environmental, social and governance factors 
for  their  investments  (associated  with  disclosure  requirements)  could  have  a  positive 
environmental effect.   

65 

5.6. 

5.7. 

5.8. 

 
   
 
  
6.  MONITORING AND EVALUATION 

The proposed rules should include a review after three years of application of the statute, 
with  a  particular  focus  on  its  appropriateness  and  effectiveness  in  meeting  the  original 
objectives.  

the  entry 

After 
the 
implementation  through  its  regular  infringement  process  as  well  as  through  its  regular 
contacts with stakeholders (e.g. consumers, industry and/or ESA's). 

the  Regulation,  Commission  will  monitor 

into  force  of 

As part of the review, key performance indicators (KPI) of impact of the measure will 
be:  

KPI's  to  monitor  the  objective  to  increase  investment  in  the  EU  and  contribute  to 
completing the CMU: 

 KPI  1:  Total  uptake  (in  terms  of  Assets  under  Management)  of  PPPs  (including 
national PPPs and the PEPP, compared to the baseline scenario.  
The  total  uptake  in  terms  of  assets  under  management  of  all  PPPs  including  national 
PPPs and the PEPP is a measure for success as the PEPP will set out the benchmark in 
terms  of  product  features.  Due  to  competition  forces,  national  PPPs  could  take  over 
PEPP features, driving take-up. Success can be measured in case the trend in total uptake 
would  be  statistically  higher  than  the  uptake  of  the  baseline  scenario  (encompassing 
national  PPPs).  This  information  is  available  through  the  household  statistics  survey  of 
EUROSTAT to be combined with information by EIOPA. 

KPI 2: Geographical and sectoral distribution of PEPP providers and investments 
in PEPPs 
A  broad  geographical  spectrum  of  PEPPs'  take-up  would  prove  their  popularity 
regardless  the  relative  wealth  of  households  in  different  Member  States  and  provide 
evidence of the contribution to a CMU. A broad circle of PEPP providers from different 
sectors  of  the  financial  industry  would  testify  for  the  economic  viability  of  PEPPs  and 
increasing inter-sectoral competition and would provide evidence of the creation of a true 
single market for personal pensions as part of the CMU. 

KPI's to monitor the enhancement of product features on the personal pension market 

KPI  3:  Number  of  PEPP  registrations  as  taken  from  the  central  register  kept  by 
EIOPA.  

The  number  of  applications  after  introduction  of  the  PEPP  provides  important 
information on the availability and market adoption of features entailed in the PEPP. 

KPI 4 : Relative share of PPPs (including national PPPs and PEPPs) compared to 
household financial assets. 

A  statistical  increase  in  the  relative  share  (compared  to  the  baseline  scenario)  would 
imply that households, after introduction of PEPP, have a higher share of savings in PPPs 
as  compared  to  holdings  of  other  financial  assets  such  as  e.g.  savings  in  deposits.  This 

66 

 
   
 
 
 
 
 
 
 
 
 
    
 
 
statistic  is  available  following  the  household  statistics  survey  of  EUROSTAT  to  be 
combined with information by EIOPA.  

KPI's to monitor the cross border provision and portability of PPPs: 

KPI 5: Number of providers using a passport over a period of 5 years (cross border 
activity  by  providers  either  through  free  provision  of  services  or  freedom  of 
establishment) 
A positive trend in the number of providers using a passport is an indicator of increased 
cross  border  activity  of  providers.  This  data  should  be  available  through  competent 
authorities & ESAs. 

KPI  6:  Relative  share  (in  numbers  and  in  value  of  assets  under  management)  of 
PEPPs with more than one (national) compartment compared to all PPPs (including 
national PPPs and PEPPs) (measure of cross border activity by individuals).  
A positive trend of the share of PEPPs with more than one compartment is an indicator 
that individuals are participating in the PEPP in a cross border context. This data should 
be available through competent authorities & ESAs. 

the  review  should  assess 

Finally, 
the  potential  Commission 
recommendation  for  a  preferential  tax  treatment  for  the  PEPP  has  been  taken  up  by 
Member States through national legislation.  

to  which  extent 

The data collected by EIOPA and ESMA in particular could contribute to monitoring the 
PEPP's  indicators  in  terms  of  take-up,  increased  investments  in  the  CMU  context  and 
increase in cross-border provision. 

67 

 
   
 
 
 
 
 
 
 
ANNEX 1 – PROCEDURAL STEPS  CONCERNING  THE  PROCESS  TO  PREPARE  THE  IMPACT 

ASSESSMENT REPORT AND THE RELATED INITIATIVE  

  Lead  Directorate-General:  Directorate-General  for  Financial  Stability,  Financial 

Services and Capital Markets Union. 

  The  initiative  is  included  in  the  Commission  Work  Programme  2017  item: 

2017/FISMA/001 

  Organisation and timing of Inter Service Steering Group’s meetings:  three meetings 
on 24 November 2016, 2 February and TBD March 2017. The Inter Service Steering 
Group  included  representatives  of  the  Directorates  General,  Competition  (COMP), 
Economic  and  Financial  Affairs  (ECFIN),  Employment  (EMPL),  Internal  Market, 
Industry,  Entrepreneurship  and  SMEs  (GROW),  Justice  and  Consumers  (JUST), 
Taxation  and  Customs  Union  (TAXUD),  Trade  (TRADE),  the  Legal  Service  (LS) 
and the Secretariat General (SG). 

  Evidence used in the impact assessment: 

o  Replies by stakeholders to the following public consultations:  

on 

personal 

framework 

  From  28  July  until  31  October  2016:  a  public  consultation  on 
personal  pensions  to  obtain  feedback  from  stakeholders  on  a 
potential  European 
pensions, 
http://ec.europa.eu/finance/consultations/2016/personal-pension-
framework/index_en.htm  
  From  30  September  2015 

to  31  January  2016:  a  public 
consultation in the framework of the Call for Evidence on the EU 
regulatory framework for financial services inviting feedback and 
empirical evidence on the benefits, unintended effects, consistency 
and 
legislation, 
the 
http://ec.europa.eu/finance/consultations/2015/financial-
regulatory-framework-review/index_en.htm   

coherence 

financial 

of 

o  A  public  hearing  on  personal  pensions:  towards a  pan-European  pension 
2016: 

product? 
on 
http://ec.europa.eu/finance/events/2016/1024-personal-pension-
framework/index_en.htm  

October 

held 

24 

o  A  public  hearing  on  the  Call  for  evidence,  held  on  17  May  2016: 

http://ec.europa.eu/finance/events/2016/0517-call-for-
evidence/index_en.htm  

o  Advice  from 

the  European  Insurance  and  Occupational  Pensions 
Authority  (EIOPA)  on  the  development  of  an  EU  single  market  for 
personal 
pensions: 
https://eiopa.europa.eu/Publications/Consultations/EIOPA%27s%20advic
e%20on%20the%20development%20of%20an%20EU%20single%20mar
ket%20for%20personal%20pension%20products.pdf  

o  Discussions with experts from Member States' authorities  on 18 October 
2016  (Expert  Group  on  Banking,  Payments  and  Insurance  (Insurance 
Formation) 

o  Statistics and reports on Pensions published by the OECD. 

68 

 
   
 
 
 
 
 
ANNEX 2 – STAKEHOLDER CONSULTATIONS 

1. SYNOPSIS OF CONSULTATIVE WORK 

To  develop  the  impact  assessment,  different  types  of  consultative  work  have  been 
undertaken,  in  particular  by  EIOPA  to  design its  technical  advice  and  by  the  European 
Commission.  Furthermore,  as  part  of  the  EPPF  study,  Ernst  &Young  conducted  a 
workshop with all relevant stakeholders. In addition, an Expert Group meeting was held 
with representatives from Member State to discuss the aspects of direct taxation.  

A synopsis of the consultative work can be found below: 

EIOPA Technical Advice 

The EIOPA technical advice has been developed in a number of consecutive steps. 

First  of  all,  the  advice  builds  on  EIOPA's  2014  preliminary  report  "Towards  an  EU-
Single Market for personal pensions". 

Second, as part of the EIOPA technical advice, two consecutive consultations have been 
undertaken by EIOPA: 

1)  EIOPA's  2015  consultation  paper  on  the  creation  of  a  standardised  Pan-European 
Personal Pension product (PEPP) and; 

2)  EIOPA's 2016 consultation paper on EIOPA's advice on the development of an EU 
Single Market for PPP3 

The public consultations were carried out from 7 July to 5 October 2015 and the second 
one from 1 February to 26 April 2016 and were addressed to all interested parties. Most 
responses came from the insurance and asset management industry; important feedback 
was received from a smaller number of consumer representatives. 

The  main  results  from  the  consultation  were  that  most  stakeholders  supported  the 
introduction of a voluntary standardised Pan-European Pension Product via a 2nd regime. 
Stakeholders were optimistic that at least in some Member States there would be demand 
for diversifying the sources of future retirement income, and in particular where there is 
pressure  on  state  pensions  and  underdeveloped  occupational  pensions.  Stakeholders 
agreed that standardisation would make personal pension products more attractive to both 
PEPP savers and providers and enable cross-border activities. Many stakeholders stressed 
that the main barrier to cross-border activities- taxation - cannot be resolved at European 
level. 

European  Commission  Public  consultation  on  personal  pensions  –  July-October 
2016 

As part  of the Capital Markets Union (CMU) Action Plan, the Commission announced 
that  it  would  assess  the  case  for  a  policy  framework  to  establish  European  personal 
pensions. More investment into personal pensions contributes to a stronger single market 
for capital through an increase in the funds available to finance the economy. 

The objective of the public consultation was to identify potential obstacles to the take-up 
of  personal  pension  products  and  to  seek  views  on  how  to  best  address  them.  The 

69 

 
   
 
consultation will also help the Commission analyse the case for an EU personal pension 
framework.  To  that  end,  individuals  (citizens,  pensioners,  students)  and  other 
stakeholders  (companies,  representative  associations,  governments)  are  asked  their 
opinion  on  possible  EU  action  in  order  to  offer  personal  pensions  to  individuals  which 
are simple, affordable, transparent and provide better returns. 

The public consultation ran from 28 July 2016 until 31st of October 2016. Overall, 595 
responses were received, of which 485 from savers, 10 from consumer organisations and 
80  from  professional  stakeholders.  Across  all  stakeholders,  there  was  consensus  on  the 
need  to  complement  public  and  occupational  pensions  with  personal  pensions.  Retail 
investors were supportive to the idea of simple transparent personal pension products and 
consider  purchasing  if  available.  Consumer  organisations  pointed  to  the  low  quality  of 
existing PPPs. In particular they pointed to the overall insufficient transparency of costs 
and  fees  of  PPPs.  Providers  indicated  that  from  the  proposed  options  for  a  European 
Personal Pension Framework, a Pan European Personal Pension Product has the highest 
potential to achieve objectives. A pension account and code of conduct are a considered a 
second  best  option  at  equal  footing.  The  least  favoured  option  by  professional 
respondents was harmonisation of existing legislation on PPPs.  

 A detailed summary of the public consultation can be found below 

Public hearing – 24 October 2016 

On  24th  of  October  2016,  the  Commission  organised  a  public  hearing  gathering  all 
stakeholders including savers, consumer associations, banks, insurers, pension funds and 
asset managers. The goal was to take stock of the views of stakeholders on the creation of 
a European Framework  for personal pension products. The conference was attended by 
approximately 250 stakeholders.  

Meeting with expert group on direct taxation – Working Party IV Direct Taxation – 
2 March 2017 

The  exchange  of  views  with  Member  States'  tax  experts  on  a  Pan  European  Personal 
Pension  Product  showed  an  interest  from  some  Member  States  in  an  initiative  on 
personal  pensions.  In  particular,  Member  States  welcomed  the  voluntary  nature  of  the 
possible  product  in  addition  to  already  existing  personal  pension  regimes.  All  Member 
States that intervened  favoured the semi-flexible or  fully-flexible approach for a PEPP. 
Flexibility is favoured by Member States as this would allow applying to the PEPP the 
same features as for their existing PPPs in order to qualify for direct tax incentives. All 
Member  States  that  intervened  made  clear  that  they  would  only  consider  granting  a 
favourable  tax  treatment  to  the  PEPP  if  product  features  would  match  their  national 
criteria for tax incentives. A few Member States invited the Commission to thoroughly 
explore subsidiarity and proportionality for this proposal. The feedback received during 
the working party was taken into account for this impact assessment.  

EY feasibility workshop on personal pensions - 15 February 2017 

As part of the EPPF study, Ernst & Young organised on 15 of February 2017 a workshop 
with  30  experts  from  all  stakeholder  groups  including  savers,  consumer  associations, 
banks,  insurers,  pension  funds  and  asset  managers.    The  goal  was  to  have  an  in-depth 
discussion  on  the  key  features  of  a  possible  personal  pension  product  in  particular  the 
impact on stakeholders. In particular, the workshop discussed alternative approaches for 

70 

 
   
 
the  key  features  of  a  European  Personal  Pension  Product.  The  topics  discussed  where 
possible limitations of investment options for savers, the applicable rules for distribution 
of  the  European  Personal  Pension  Product,  the  out-payment  options  available  on 
retirement,  the  appropriate  disclosure  requirements,  authorisation  and  supervision  of 
providers.   

The feedback received during the workshop was used for the feasibility assessment in the 
EPPF Study.  

2.  DESCRIPTION  OF  THE  PUBLIC  CONSULTATION  ON  PERSONAL  PENSIONS    (JULY-

OCTOBER 2016) 

2.1  The consultation mechanism 

The  Commission's  consultation  on  a  potential  EU  personal  pension  framework113  was 
launched on 28 July 2016 and closed on 31 October 2016. It collected views on how to 
best  address  the  current  obstacles  within  the  personal  pensions  market  and  helped  to 
assess  the  feasibility  of  a  potential  EU  policy  framework  to  establish  a  successful 
European market for simple, efficient and competitive personal pensions.  

In particular, the consultation was designed to help the Commission map individuals' and 
providers'  expectations  for  an  EU  personal  pension  framework.  The  consultation 
gathered  views  on  how,  in  the  future,  personal  pensions  can  better  complement 
retirement  income  and  how  to  make  individuals  more  confident  about  using  personal 
pensions to save for their retirement. 

This Annex offers a brief overview of the input received through the public consultation 
on  the  case  for  an  EU  personal  pension  framework.  The  Commission’s  minimum 
standards  for  public  consultations  were  all  met.  Within  the  online  questionnaire,  three 
separate sets of questions were developed for three target groups: 

  private individuals (part B1) – they were invited to provide information on their 
experience  using  personal  pension  schemes  and  whether  they  are  interested  in 
using these schemes to save for their retirement; 

  consumer  organisations  (part  B2)  –  expected  to  share  their  views  on  consumer 
experiences  and  preferences  linked  to  the  interest  in  saving  for  retirement, 
products' assessment, expectation of simple, affordable efficient and safe personal 
pensions with good returns, as well as consumers' preferences with regard to the 
information available when investing in personal pensions; 

  other stakeholders in professional capacity: those who provide, would provide, or 
represent  organisations  that  are  or  would  be  involved  in  providing  personal 
pensions,  public  authorities  regulating  personal  pensions,  academics  or  other 
professionals  involved  with  personal  pensions  in  a  professional  capacity  (part 
B3).  Thus,  the  consultation  probed  the  views  of  professionals  working  in  the 
pensions industry and their interest in offering simple, affordable and transparent 
personal pension products which work towards providing better returns.  

113   http://ec.europa.eu/finance/consultations/2016/personal-pension-framework/index_en.htm 

71 

 
   
 
 
 
 
                                                 
These  three  broad  target  groups  were  designed  to  include  all  citizens  and  stakeholders, 
EU Member States, national, regional and local authorities, intergovernmental and non-
governmental organizations, researchers with an interest in pension issues, trade unions, 
civil society organizations and other organisations or individuals.  

The  public  consultation  was  undertaken  in  the  form  of  an  e-survey.  An  online 
questionnaire  was  available,  with  the  three  sets  of  questions  covering  practically  all 
important aspects of the action discussed and tailored to match the level of knowledge, 
experience  and  sophistication  of  each  respondent  target  group.  An  additional  incentive 
for  stakeholders  to  participate  was  the  potential  of  the  consultation  to  enable  the 
Commission to assess what can be done at EU level to support a wider choice of personal 
pensions competing across borders. 

The received responses were published on the Internet.  

2.2. Summary of responses to the consultation 

Overall 585 responses were received by following stakeholder groups: 

  494 private individuals; 
  11 consumer organizations; 
  80 respondents acting in professional capacity. 

The below summary is more elaborate regarding professional stakeholders compared 
with private individuals and consumer organisations due to the more detailed 
questionnaire for professional stakeholders. 

2.2.1. Summary of views of private individuals 

In  general,  a  large  majority  of  respondent  private  individuals  agree  there  is  a  need  to 
complement  public  and  occupational  pensions  with  private  pensions.  Only  a  small 
minority  consider  that  the  current  public  and  occupational  pension  provision  would  be 
sufficient. 

Private individuals not investing in a personal pension indicated a wide range of distinct 
reasons  explaining  their  behaviour.  Few  consumers  indicated  they  count  on  state-based 
and  occupational  pension.  Some  respondents  refer  to  the  lack  of  awareness  of  existing 
pension  savings  products.  Some  others  refer  to  drawbacks  such  as  the  insufficient 
portability, or to high fees. A few respondents considered that the tax incentives were not 
sufficient.  In addition, some refer to the lack of available funds for any personal pension 
savings,  while  others  invest  in  other  types  of  financial  instruments/products.  Only  a 
minority  of  respondents  consider  that  the  PPPs  currently  available  are  simple  and 
transparent.  

A large majority of respondents is interested in a European Personal Pension product if it 
would  be  available.  A  minority  would  consider  investing  in  other  savings  products  or 
does not know what to choose.  If asked on how individuals would purchase the pension 
product,  respondents  favoured  a  wide  range  of  distribution  channels  including  online 
distribution. A significant minority of respondents considered purchasing online even if 
no  advice  would  be  offered.  Most  respondents  consider  product  information  important. 
Information  considered  important  includes  information  on  investment  options  available 
and  information  on  past  returns  of  the  product.  In  addition,  information  on  annual  fees 

72 

 
   
 
 
 
 
and returns, information on tax relief, information on the level of protection provided on 
the  savings  is  considered  important  by  a  majority  of  individuals.  Respondents  also 
considered  important  information  on  flexibility  of  contributions  and  the  possibility  to 
allow  for  temporary  interruptions  of  the  contributions  in  specific  situations  (e.g. 
unemployment)  while  preserving  the  acquired  rights.    A  majority  of  individuals 
considered such product information should be available before signing up to the product 
and updated periodically during the lifetime of the product. Respondents also considered 
it important that information should be available by means of a standardised information 
sheet. 

2.2.2. Summary of views of consumer organisations 

In  general,  a  majority  of  consumer  organisations  agree  there  is  a  need  to  complement 
public  and  occupational  pension.  Furthermore,  consumer  organisations  indicate  that  a 
large majority of consumers is not satisfied with the existing personal pension products 
available  to  consumers.  A  majority  of  consumer  organisations  are  of  the  view  that 
consumers  are  not  adequately  informed  of  the  fees  and  charges  they  pay  on  and  the 
returns they get from personal pension products. One consumer organisation considered 
that consumers are provided with information on fees and returns, but this information is 
sometimes presented in an opaque way. Another consumer organisation considered that 
fees are not disclosed in an aggregate way, especially in case of multi-layer products such 
as unit-linked life insurance. As a consequence, pension savers do not know the full fees 
and commissions, because they are not disclosed. The information provided on returns is 
also often incomplete and does not indicate the net return, after taxes and applicable fees.  

As regards the features of the product, consumer organisations underline the importance 
of  consumer  protection,  as  personal  pensions  are  long-term  savings  products  requiring 
contributions  over  a  very  long  period  of  time,  often  three  or  even  more  decades.  This 
underlines  the  importance  of  protecting  savings,  ensuring  appropriate  disclosure  of 
information on investment options and on the possibility of switching.  To ensure product 
simplicity, a majority of consumer associations generally support the concept of a simple 
and  safe  default  investment  option  combined  with  a  limited  number  of  alternative 
investment options.  

Consumer  organisations  favour  protection  of  savings  by  risk-mitigating  techniques.  A 
limited number of consumer organisations favour  a guarantee  on capital  or  a  guarantee 

73 

 
   
 
 
 
 
 
on  returns  as  the  right  approach  to  protect  savings.  Some  consider  that  a  guarantee  on 
nominal  capital  could  be  misleading  and  detrimental  to  EU  pension  savers  due  to 
inflation.  One  consumer  organisation  considered  that  personal  pension  products  with 
guarantees  in  the  accumulation  phase  are  often  a  bad  deal  for  savers,  because  of  the 
associated  costs  and  product  complexity.  However,  some  consumer  organisations 
considered that for some savers (e.g. those closer to the retirement age) guarantees could 
still  be  interesting,  but  in  those  cases  there  should  at  least  be  inflation-proofing.  One 
consumer organisation considered that a default investment option with a capital-backed 
guarantee could reassure individuals who are not familiar with finance and unwilling to 
bear any financial risk over the entire accumulation period and who want to be certain as 
to the minimum return their pension product would provide.  

Furthermore,  switching  should  be  without  conditions  in  the  view  of  consumer 
organisations. However, one consumer organisation considers that too flexible switching 
could  entail  risks  of  miss-selling  in  case  of  consumers  with  low  level  of  financial 
education.  

For decumulation, consumer associations support flexibility for savers in the options. In 
addition,  consumer  organisations  find  cross-border  portability  important,  also  in  the 
decumulation period.  

2.2.3. Summary of views of professional stakeholders 

Challenges  

It is instructive that most of the professional stakeholders responding to the questionnaire 
(Part B3) do not offer personal pension products to consumers, and almost half of those 
who  do  have  such  activity  do  so  in  only  one  EU  Member  State.  Mostly  tax  issues  are 
mentioned by respondents from virtually all fields of activity and sectors as limiting the 
development  of  personal  pensions  in  the  relevant  Member  State(s)  of  activity.  The 
absence of a specific tax treatment for individuals to save/postpone income for a longer 

74 

 
   
 
 
 
 
 
 
 
 
term  is  decried.  Complexity  (sometimes  even  regulatory  contradictions)  is  pointed  out 
mainly by trade unions and non-governmental organisations as another problem, national 
prudential rules and administrative requirements constituting one of the main obstacles to 
the  development  of  personal  pensions  by  smaller  companies.  Differences  in  national 
legislation,  such  as  administrative  rules,  contract  law,  taxation,  social  security  law  and 
supervision are important barriers which limit the development of personal pensions. As 
one  insurance  industry  association  points  out,  some  PPPs  are  governed  by  Solvency  II 
capital  requirements,  which  it  says  are  not  adapted  to  the  risk  management  of  the 
retirement business. High costs of obligatory public pension schemes also contribute to 
limit availability of savings for personal pensions. Citizens are obliged to contribute up to 
25%  of  their  income  to  public  schemes.  According  to  both  companies  and  think  tanks, 
the  relatively  low  penetration  of  PPPs  in  some  Member  States  has  less  to  do  with  the 
product  supply,  but  more  with  low  awareness  about  pensions  among  citizens  and 
insufficient  financial  education.  As  insurers  explain,  in  some  Member  States  the 
replacement  ratios  from  state  pensions  are  still  at  a  high  level.  Given  the  current 
economic situation, the unemployment rate, stagnating wage levels, a serious obstacle is 
represented by low income of workers across Europe, which is a natural concern for the 
participating trade unions. 

As  issues  which  limit  the  development  of  personal  pensions  across  borders  insurers, 
pension  funds  and  asset  managers  almost  unanimously  point  out  the  varying  national 
requirements  and  tax  regimes  from  one  Member  State to  the  other.  Consensus  exists 
that  insufficient  demand  from  individuals  for  cross-border  pensions  (e.g.  due  to 
uncertainties about cross-border providers, perception that a cross-border pension would 
only be relevant in case of mobility, etc.) represents a major obstacle. 

Key Features of a PEPP 

Distribution, including information and advice 

As  regards  distribution,  the  distribution  channel  mostly  favoured  by  professional 
stakeholders  (whatever  their  sector)  in  order  to  maximise  the  benefits  and  efficiency 
gains of a Single Market for personal pensions is the online channel. A large insurance 
company is of the view that a mix of face-to-face and online access is the best solution: 
in  addition  to  the  promotion  of  the  product,  for  most  investors  oral  explanation  and 
answers to questions would be needed for distribution. It is opined, by insurance industry 
associations  and  asset  managers,  that  distribution  via  commercial  banks  would  hinder 
creative  disruption  as  would  do  all  kind  of  kick-back  mechanisms  with  intermediaries, 
but  others  (mostly  institutional  investors)  underline  their  preference  for  distributions 
through  banks,  insurers  or  direct  distributions  to  their  clients,  depending  the  profile  of 
their  client.  Most  stakeholders  believe  that  all  distribution  channels  should  be  possible 
for convenience and freedom of choice. Legislation should not hinder nor incentivise one 
channel  over  another.  Online  sales  should  be  subject  to  the  same  transparency 
requirements  as  “traditional”  distribution  channels  to  avoid  distorting  competition,  the 
regulation being technologically natural. It is also pointed out (by an insurance company) 
that  there  is  a  need  to  cater  for  the  advantages  of  promoting  /  distributing  through  the 
workplace,  as  well  as  the  ability  to  use  mechanisms  like  automatic  enrolment  into 
schemes to encourage greater take up.  

When  asked  whether  they  consider  that  there  should  be  mandatory  advice  for  the 
provision  of  personal  pensions,  the  greater  part  of  business  representatives    reply  that 

75 

 
   
 
pensions  products  are  normally  long-term  products  that  require  individual  advice, 
regardless  of  distributed  on  provisions  or  fees.  However,  there  are  views  (mainly  from 
think tanks and smaller companies) that advisory services should not be mandatory and 
should be linked to the complexity and costs of the PPP, taking into account the situation 
of every member.  

On the question what information is most relevant to individual savers before signing 
up to a product, the respondents from all business fields almost unanimously consider 
the  information  on  the  tax  regime  for  contributions,  returns  and  pay-outs  as  very 
important. The information on the provided level of protection is also assessed as being 
such.  The  opinions  are  more  divided  (between  the  assessments  "very  important"  and 
"fairly important") on the information about available investment options, different types 
of fees and level of fees disclosed annually. Less importance seems to be assigned by the 
professional stakeholders to the information on the rate of return over the last two years 
and on information provided in a standardised format (similarly to the PRIIPs KID). 

Replies  are  mostly  negative  with  regard  to  the  question  whether  the  PRIIPs  Key 
Information Document (KID) or some elements of it should be used for the purposes of 
personal  pension  disclosures.  The  overwhelming  majority  of  respondents  across  the 
different fields of activity are convinced, however, that PRIIPs constraints are too high to 
allow a wide distribution of pension products.  

When asked is there any other information that would be of importance for savers before 
signing  up  to  a  product,  professional  stakeholders  (from  the  insurance  sector)  mention, 
for example: 

Information about guarantees; 

 
  Understandable performance scenarios for the target benefit level, indicating also 

that the performance of the product is not certain; 

  Different possibilities for the pay-out phase; 
  Coverage against biometric risk, e. g protection against longevity risk, protection 

of surviving dependents; 

  Focus  on  the  possible  maximum  loss  of  invested  capital  at  retirement,  also 

whether the consumer can lose all invested capital. 
The total cost impact of fees (RIY).  

  minimum investment period(s);  
  degree of illiquidity and conditions for partial withdrawal (e.g. medical expenses) 

depending on national law;  
risk coverage where provided (e.g. death/life/disability);  

 
  consequences of early termination. 
  environmental and social investment policy  
 

information  on  the  portability  of  the  product  in  the  event  of  moving  to  another 
Member State and exit rules. 

When asked what information is most relevant to individual savers during the lifetime 
of the product, professional stakeholders are almost unanimous (whatever their business 
field)  that  the  information  on  accumulated  benefits,  the  level  of  fees  and  on  the  tax 
treatment  of  savings  is  of  utmost  importance,  although  the  other  types  of  information 
(current  and  available  investment  options,  the  rate  of  return,  the  level  of  protection 
provided  and  the  expected  benefits  at  retirement)  are  also  assessed  as  being  of  certain 
significance. 

76 

 
   
 
 
 
Investment policy 

The  predominant  view  among  insurers  and  their  associations  is  that  there  should  be  a 
default  investment  option  in  a  personal  pension  product  which  would  provide 
simplicity and safety catering for the needs of a majority of personal pension savers. As a 
type  of  protection  attached  to  the  default  investment  option  (ensuring  simplicity  and 
safety  for  investors  in  personal  pensions),  protection  of  capital  and  on  returns  are 
mentioned  (this  choice  to  be  left  to  the  consumer),  although  some  respondents,  mostly 
asset managers, believe that no capital protection is needed: any mandatory guarantees of 
value  of  assets  is  perceived  as  not  desirable,  since  it  decreases  the  return.  Yet  another 
view, mainly maintained by some think tanks, is that guarantees can be optional.  

On  the  question  whether  the  number  of  alternative  investment  options  should  be 
limited the opinions are almost equally split. The supporters of such a solution, engaged 
e.g. in supervisory and regulatory activity, argue that too many options cause confusion 
to members and that might lead them in the direction of not taking the best decisions for 
their own interest. A consultancy firm sees no compelling reason for this to be set at the 
European level. One major company involved in investment management considers that 
life-cycling with de-risking strategy may provide sufficient protection to investors. In the 
present  context  of  low  interest  rates  (which  may  be  lasting)  any  guarantee  would  be 
costly  with  detrimental  effects  on  the  final  return.  In  addition,  investment  in  a  PEPP 
would  be  spread  over  a  long  period,  which  limits  risks  linked  to  financial  markets' 
variations. Others (e.g. those involved in investment management or think tanks) favour a 
limited  number  of  investment  options,  but  without  imposing  a  fixed  number.  While 
providers should avoid the potential for choice overload, it would be beneficial for them 
to  be  given  flexibility  in  deciding  the  number  of  options  to  offer.  Providers  of  PPPs 
should be the given sufficient freedom to determine the available investment options of 
their product, however this issue has to be complemented with the care of consumers. A 
sufficient  number  of  alternative  investment  options  may  represent  a  suitable  option  to 
help  consumers  in  their  choice.  Some  insurers  oppose  product  restrictions  at  the  EU 
level,  as  this  could  limit  providers'  freedom  to  design  products  and  hamper  innovation, 
thus limiting consumers' choice and ability to access products tailored to their needs. 

Portability 

On the question should a personal pension product be portable across Member States, 
all  professional  stakeholders  consider  that  it  is  either  very  or  fairly  important.  When 
asked what the main barriers for portability of existing personal pension products are, 
companies consider that the main barriers are varying regulation and taxation. Disparity 
of regulation may be trickier when it affects the structure of the PEPP itself, the reason 
why a 2nd regime could allow for overcoming regulatory barriers. 

Another  barrier  mentioned  is  the  insufficient  information  provided.  In  this  field, 
compulsory information on future pension estimation could also provide the opportunity 
to  provide  information  on  PEPP.  According  to  the  classification  of  an  industry 
association, the main barriers are: i) differences in the regulation of pension contributions 
and  in  tax  rules;  ii)  language  and  informational  barriers,  whereby  a  citizen  moving  to 
another Member State may find it difficult to look for information documents on personal 
pension products in  the destination country, especially if these documents are available 
only in a language he/she is not familiar with. Similarly, for financial advisors operating 
in  the  destination  country,  these  barriers  may  hinder  their  capability  of  assisting 

77 

 
   
 
European citizens moving from one Member State to another; iii) exit costs for personal 
pension products. 

Other stakeholders (coming e.g. from the academic world) believe that portability is not 
always  compatible  with  the  nature of  the  pension  product,  for  technical  reasons,  which 
should be taken into account before assigning any general objective. Some stakeholders 
advise  to  preserve supplementary pension rights for PEPPs  as  it is  done for workers  in 
the Directive 2014/50/UE and in  the same time, support  at European level a disclosure 
system for citizens about their pension’s level in different pillars. 

Provider Switching  

Asked  under  what  conditions  it  should  be  possible  to  switch  personal  pension 
providers,  the  majority  of  professional  stakeholders,  mainly  industry  associations  of 
insurers  and  pension  funds,  believe  that  switching  should  be  only  possible  after  a 
minimum lifetime of the product and allowed only a limited number of times. Cost and 
fees should be left to competition between providers. Protection against biometric risks 
might  be  diminished  or  lost  by  switching  providers.  The  insurance  collective  could  be 
weakened  if  switching  were  allowed  without  charges  and at  all times.  Less  are those  – 
mostly  trade  unions  and  think  tanks  –  considering  that  switching  should  be  possible 
without conditions. They usually declare full support for consumer mobility and freedom 
for savers to consolidate their savings. Nevertheless, providers should have the freedom 
to  apply  a  charge  for  switching  when  consumers  regularly  switch.  A  large  company 
(involved  in  insurance,  pension  provision  and  investment  management)  observes  that, 
across  borders,  when  a  customer  has  become  resident  in  another  Member  State  but 
wishes  to  switch  an  existing  product  in  the  home  Member  State  to  another 
product/provider, the applicable general good rules of the host Member State create legal 
risks for the provider. An extension of the insurance contract freedoms would reduce this 
risk. 

Decumulation 
As  to  the  preferences  to  forms  of  pay-out,  the  majority  holds  that  there  should  be 
flexibility  in  the  decumulation  phase,  because  due  to  different  consumer  expectations 
across  the  EU,  different  decumulation  options  should  be  possible.  As  one  company 
concludes, irrespective of the form of pay-out offered, it is extremely important to keep 
communicating  and  engaging  with  customers  throughout  the  decumulation  phase  to 
ensure  they do  not  take  decisions  that  negatively  impact  their  retirement  income  in  the 
long run. 

Those  preferring  life  time  annuities  (mostly  trade  unions,  as  well  as  some  professional 
associations and non-governmental organizations) provide arguments that a PPP can only 
contribute  to  secure  income  in  retirement  if  consumers  are  protected  from  exhausting 
their  assets  before  they  pass  away.  Moreover,  as  declared  by  some  insurers  and  their 
associations,  sharing  biometric  and  financial  risk  during  the  pay-out  phase  (within 
insurance  collective  and  over  time)  increases  predictability  and  stability  of  retirement 
income streams for consumers. 

Asked  about  the  factors  which  would  encourage  competition  to  offer  high  quality, 
affordable  personal  pension  products,  professional  stakeholders  (mostly  from  the 
insurance  industry  and  the  few  responding  banks)    agree  that  very  important  are  the 
transparency  on  fees  and  costs,  the  level  of  fees  and  returns,  as  well  as  tax  and  other 

78 

 
   
 
 
 
 
financial incentives to personal pension savings. Less importance is accorded to the type 
of investment policy (active versus passive), to the ease of distribution, as well as to the 
existence of a benchmark to assess the product's performance, safety and simplicity. The 
consumer  awareness  of  the  availability  of  retirement  products  is  assessed  as  fairly 
important too, especially by investment firms and their collective bodies. 

Tax treatment  

There is consensus that tax incentives are important for the uptake of personal pension 
products by savers. The fiscal benefits are deemed very important virtually by all types of 
organizations and sectors. The market seems to organize itself also around tax benefits.  

According to an association of specialized financial institutions (building societies), not 
only  tax  deductibility,  but  also  subsidies  are  important  ways  to  promote  private 
retirement  provision.  Both  incentives  are  needed  to  achieve  a  preferably  high  level  of 
participation at “private pension prevention in the societies”. 

Providers  offering  personal  pension  products  in  other  Member  States  were  asked  how 
they  accommodate  differing  national  tax  regimes.  It  is  instructive  that  most  of  the 
responding professional stakeholders actually do not provide PPPs outside their Member 
State  of  establishment.  Those  few  who  do  this  operate  mostly  through  branches  or 
subsidiaries. Only three  respondents out of 80  (in the fields of investment  management 
and  occupational  pensions)  declare  that  they  operate  directly  across  the  border  without 
branches or subsidiaries.  

Possible EU Action  

On the question what are the most significant benefits of providing personal pensions 
on  an  EU  scale,  most  professional  stakeholders,  companies,  SMEs  and/or  other 
institutions  involved  in  the  management  of  funds  deem  as  very  important  the  lower 
operating costs and making the PPP attractive to mobile customers.  

On fostering cooperation between stakeholders (Member States, providers, consumers) 
around  a  common  approach  to  providing  personal  pension  products,  most  stakeholders 
from all business areas respond that such an approach would not address at all, or would 
address only partly, the challenges of: 

  enhancing the take-up of personal pensions by consumers in the EU;  
  cross-border offering of personal pension products by providers in the EU;  
  widening of the range of providers; 
  enhancing efficiency, asset allocation and returns; 
  contributing to innovation within the PPP market. 

On  establishing  a  European  personal  pension  account,  similarly  to  the  Individual 
Retirement  Account  (IRA)  offered  in  the  United  States,  the  stakeholders'  opinions  are 
split. The greater part (insurers, asset managers) respond that such an approach would not 
solve  at  all,  or  would  solve  only  partly,  the  above-mentioned  challenges,  but  there  are 
some  views  (mostly  from  banks  and  trade  unions)  that  IRA  could  largely  contribute  to 
address these challenges.  

On establishing a European personal pension product on a voluntary basis, based on a 
set  of  common  and  flexible  features,  most  professional  stakeholders  assume  that  this 

79 

 
   
 
 
 
 
 
 
 
 
solution  would  largely  and  even  decisively  address  the  above-mentioned  challenges.  A 
shade  of  scepticism  characterizes  those  opinions  (not  an  insignificant  number,  coming 
mainly  from  some  industry  associations  in  the  field  of  investment  management) 
according to which the challenges would be only partly addressed by this solution. 

The  attitude  of  professional  stakeholders  on  the  option  of  harmonizing  national 
personal pension regimes, but excluding tax requirements are viewed as not attractive. 
Most respondents, across all sectors and fields of activity, consider that such a solution 
would partly address the above-mentioned challenges, or would not address them at all. 

Professional Capacity: industry views on the attractiveness of policy options 

80 

 
   
 
 
 
 
 
 
 
 
 
 
ANNEX 3 – WHO IS AFFECTED BY THE INITIATIVE AND HOW 

The main stakeholder groups affected by this initiative are the following: 

Individuals 

The product would provide additional choice for all EU individuals saving for retirement.  
They  would  benefit  from  a  new  simple,  transparent  personal  pension  product  and 
potentially benefit from increased competition, lower costs and potentially higher returns. 

The  new  product  would  facilitate  saving  for  retirement  by  self-employed  who  do  not 
contribute in such capacity to an occupational pension.  

As regards the cross-border dimension, the new product would be particularly attractive 
for mobile workers (currently, 11 million persons in the EU).  

Providers including insurers, pension funds, asset managers 

Insurers, pension funds and asset managers and banks would be enabled to provide the 
personal pension product to the market and facilitate cross-border provision of personal 
pension products.  

Insurers, which are in the majority of cases the incumbent national providers of existing 
PPPs,  would  be  enabled  to  provide  the  new  European  personal  pension  product  in 
addition  to  existing  national  products.  They  would  likely  face  additional  competition 
from  asset  managers  and  pension  funds  which  are  enabled  to  provide  personal  pension 
products under the EU rules.  

All  providers  would  be  facilitated  to  create  economies  of  scale  through  increased 
standardisation  of  product  features  and  would  compete  on  the  basis  of  a  level  playing 
field.  

Public authorities   

Public  authorities  would  ensure  the  supervision  of  the  personal  pension  product  to 
ensuring  compliance  of  providers  with  product  features  set  out  in  the  EU  rule.  This 
should  ensure  that  providers  compete  on  the  basis  of  a  level  playing  field  and  that  the 
savers  are  sufficiently  protected.  Competent  authorities  will  ensure  supervision  of 
regulated entities. Authorisation of the PEPP and compliance with product requirements 
could be attributed to one of the European Supervisory Authorities.  

81 

 
   
 
 
 
 
ANNEX 4 – ANALYTICAL MODELS USED IN PREPARING THE IMPACT ASSESSMENT 

Section A - Assets under management under the baseline and PEPP scenarios 

As mentioned in the body of the impact assessment, the current PPP market is estimated 
at EUR0.58 trillion euros as of 2014 on 24 Member States where the contractor managed 
to  collect  meaningful  data.  In  order  to  have  an  estimate  for  the  whole  EU  as  a  starting 
point  of  the  projection  of  the  baseline  scenario  (i.e.  without  the  introduction  of  the 
PEPP),  the  AUM  for  the  missing  member  states  is  based  on  these  countries'  shares  in 
total households financial assets excluding currency and deposits which is calculated at 
26% as per Eurostat data114. By applying this correcting factor, the current market is then 
estimated at EUR0.72 trillion euros. 

In  the  absence  of  the  PEPP,  the  personal  national  markets  are  expected  to  grow  to 
EUR1.4  trillion  euros  by  2030  given  the  growth  of  underlying  assets  and  new 
investments  (e.g.  premiums)  by  current  and  future  PPP  holders.  This  estimate  projects 
PPPs to grow in line with previous growth of total financial assets of private households 
as  observed  for  all  28  member  states  between  2012  and  2016  (this  is  the  longest  time 
span where data is available for all EU member states). 

As  for  the  scenario  including  a  successful  take-up  of  the  PEPP,  one  could  reasonably 
expect that the first products will be sold within two years from the date of application of 
the  PEPP  framework.  As  also  explained  in  the  above,  this  takes  into  account  the 
legislative process, the possible technical standards developed after the entry into force of 
the  regulation  and  the  time  needed  for  providers  for  the  design,  the  marketing  and  the 
distribution of the product.  If successful,  the PEPP can  reach  its  full  market  potential  - 
EUR0.7  trillion  –  over  a  10-year  period  taken  into  account  the  PEPP  would  receive  
favourable tax treatment in all Member States. Without the favourable tax treatment the 
uptake would take longer and would be closer to the baseline scenario. Details about the 
PEPP market potential modelling could be found in section B of this Annex.  

Section B – PEPP market potential modelling 

The PEPP market potential has been estimated in three steps which are explained below. 

Step 1 – the penetration index 

A  penetration  index  was  built  to  identify  the  most  successful  PPPs.  This  measure  of 
success is a multidimensional indicator taking into account three dimensions: 

  The product’s level of capitalization: the level of product asset under management 
(AuM)  compared  to  households  financial  assets  (HHFA)  was  used  to  measure 
product’s success in terms of capitalization or asset accumulation. The household 
financial  assets  were  preferred  to  the  more  common  GDP,  because  however 
similar  (see  figure  below),  HHFA  is  a  closer  proxy  to  measure  the  ability  to 
invest in a PPP. 

  The level of participation to the product: in a similar spirit, the comparison of the 
number of PPP holders with the size of the population was used to measure the 
attractiveness of the product, 

114   EUR 6.1 trillion out a total for EU of EUR 23.4 trillion as of September 2016 

82 

 
   
 
 
 
                                                 
  The dynamic of the product: to capture the dynamic of the product the volume of 

annual in-payments was compared to the level of savings. 

The methodology to measure penetration is to evaluate relative performance of the three 
aforementioned penetration indicators with respect to their respective trends. The points 
for  each  dimension  are  plotted  on  a  logarithmic  scale,  in  order  not  to  give  unfair 
advantages  to  any  country  based  on  its  size,  household  financial  assets  or  household 
savings  -  which  would  each  yield  greater  performance  indicators  when  small.  A  linear 
regression  for each of the indicators  outputs  a trend line. The distance of each point to 
this  line  allows  to  measure  how  much  above  the  trend  (or  under  it)  each  PPP  market 
stands. It is therefore counted positively if the PPP stands above the line, negatively if it 
stands  under  it.  To  give  the  same  relative  weight  to  each  dimension  in  the  final  grade, 
this  distance  is  divided  by  twice  the  standard  deviation.  The  final  grade  is  obtained  by 
calculating the average for each of the three dimensions that are available for the product. 
The performance evaluates for the 36 products for which at least one of the three success 
indicator  dimensions  can  be  computed.  The  PPP  with  the  highest  penetration  index 
according to this measure is the German PPP (Riester). 

In terms of economic modelling, this indicator can be interpreted as a propensity to buy a 
PPP rather than use an alternative savings method. This can be used to model consumer 
choice as explained below.  

Step 2 - Modelling consumer choice  

The  model  is  developed  on  the  assumption  that  consumers  have  the  choice  between  a 
PPP and another product. The utility of consuming one unit of PPP and one unit of the 
other products is specified below:  

𝑈𝑃𝑃𝑃 = 𝛼𝑖 + 𝜋𝑖𝑑𝑢𝑚𝑚𝑦𝑓𝑒𝑎𝑡𝑢𝑟𝑒𝑠 + 𝛽𝑖𝑇𝑎𝑥𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠 +   𝛾𝑖𝐴𝑔𝑒 + 𝛿𝑖𝐺𝐷𝑃

+ 𝜃𝑖𝑃𝑒𝑛𝑠𝑖𝑜𝑛𝑆𝑦𝑠𝑡 +   𝜇𝑖𝐴𝑠𝑠𝑒𝑡𝑠  

𝑈𝑜𝑡ℎ𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑠 = Ω𝑖 + 𝛽𝑖𝑂𝑡ℎ𝑒𝑟𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠 +   𝛾𝑖𝐴𝑔𝑒 + 𝛿𝑖𝐺𝐷𝑃 + 𝜃𝑖𝑃𝑒𝑛𝑠𝑖𝑜𝑛𝑆𝑦𝑠𝑡

+   𝜇𝑖𝐴𝑠𝑠𝑒𝑡𝑠  

In the above equations: 

  The  variable  Dummyfeatures  accounts  for  when  there  are  several  PPPs  in  one 
member  state.  This  dummy  variable  takes  a  value  of  1  for  the  most  successful 
PPP (highest ranking) and a value of 0 otherwise. This dummy captures products 
features of the PPP that are deemed superior to other PPP features by consumers.  
  Effective  tax  rates  (OECD,  2004)  were  used  to  measure  the  strength  of  tax 
incentives  associated  to  each  PPP.  These  tax  rates  increase  as  the  tax  system 
becomes  more  burdensome.  The  difference  in  effective  tax  rates  between  the 
general  tax  regime  and  PPP  tax  regime  were  used  as  an  indication  of  the 
‘generosity’  of  the  tax  relief.    The  variable  Taxincentives  corresponds  to  this 
difference. The larger is this indicator, the more generous is the tax relief.  

  Age corresponds to the age of the PPP.  
  The variable GDP denotes GPD per capita provided by Eurostat.  
  PensionSyst  corresponds  to  the  proportion  of  old  age  income  that  is  covered  by 
the  state.  This  variable  is  available  from  the  OECD  it  aims  at  capturing  the 
generosity of pension system.  

83 

 
   
 
  Assets denotes the percentage of household financial asset excluding currency and 

deposit. 

Each coefficient in front of the above variables can be interpreted as the parameter which 
captures consumer’s preferences.  

Using the above equations we can define the latent variable Z: 

𝑍 = 𝑈𝑃𝑃𝑃 − 𝑈𝑜𝑡ℎ𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑠

= 𝛼𝑖 + 𝜋𝑖𝑑𝑢𝑚𝑚𝑦𝑓𝑒𝑎𝑡𝑢𝑟𝑒𝑠 + 𝛽𝑖𝑇𝑎𝑥𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠 +   𝛾𝑖𝐴𝑔𝑒 + 𝛿𝑖𝐺𝐷𝑃
+ 𝜃𝑖𝑃𝑒𝑛𝑠𝑖𝑜𝑛𝑆𝑦𝑠𝑡 +   𝜇𝑖𝐴𝑠𝑠𝑒𝑡𝑠 −   Ω𝑖 − 𝛽𝑖𝑂𝑡ℎ𝑒𝑟𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠 − 𝛾𝑖𝐴𝑔𝑒
− 𝛿𝑖𝐺𝐷𝑃 − 𝜃𝑖𝑃𝑒𝑛𝑠𝑖𝑜𝑛𝑆𝑦𝑠𝑡 −   𝜇𝑖𝐴𝑠𝑠𝑒𝑡𝑠 

Given  that  the  above  utility  parameters  are  invariant  of  consumer  choices  the  above 
equation can be rewritten as: 

𝑍 = 𝛼𝑖 −   Ω𝑖 + 𝜋𝑖𝑑𝑢𝑚𝑚𝑦𝑓𝑒𝑎𝑡𝑢𝑟𝑒𝑠 + 𝛽𝑖(𝑇𝑎𝑥𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠 − 𝑂𝑡ℎ𝑒𝑟𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠) 

Individual  maximizes  utility  when  making  consumption  choices  thus  when:  𝑍 > 0, 
individual purchases the PPP product otherwise it purchases another product.  

Assuming that 𝑍~𝑁(𝑋𝛽, 𝜎2) i.e. is normally distributed and that one unit is consumed, 
the market share of the PPP product then corresponds to the probability that Z is greater 
than 0.  This leads to: 

𝑀𝑆 = 𝛼𝑖 + 𝜋𝑖𝑑𝑢𝑚𝑚𝑦𝑓𝑒𝑎𝑡𝑢𝑟𝑒𝑠 + 𝛽𝑖𝑇𝑎𝑥𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠 + ɛi 

Our penetration index can be viewed as proxy of the market share. The larger this index 
the larger should be the market share and the reverse is true. This leads to the following 
relationship:  

𝑟𝑎𝑛𝑘𝑖𝑛𝑔 𝑖𝑛𝑑𝑒𝑥 ~ 𝛼𝑖 + 𝜋𝑖𝑑𝑢𝑚𝑚𝑦𝑓𝑒𝑎𝑡𝑢𝑟𝑒𝑠 + 𝛽𝑖𝑇𝑎𝑥𝑖𝑛𝑐𝑒𝑛𝑡𝑖𝑣𝑒𝑠 + ɛi 

This  relationship  has  been  estimated  with  OLS  (ordinary  least  square)  regression    and 
robust standard errors as shown in the table below: 

84 

 
   
 
 
 
 
The estimated relationship demonstrates the dominance of the tax incentive that clearly 
emerges  from  the  literature  as  well.  Product  features  play  a  much  smaller  role  and  by 
themselves would not lead to choosing the product (they are smaller than the (negative) 
intercept term).  

As mentioned above the penetration index is a proxy of market share which itself can be 
expressed  in  terms  of  assets  under  management  compared  to  all  household  financial 
assets.  

Step 3 - Estimating market potential 

Using  this  relationship,  one  can  estimate  the  market  potential  based  on  the  assumption 
that  consumers  face  the  most  favourable  set  of  incentives  present  in  the  sample  (the 
German Riester product).  

If that was the case, a PEPP - that is at least as attractive as the most attractive current 
PPP  -  could  attract  a  demand  of  around  EUR  0.7  trillion.  To  get  to  this  estimate  in 
absolute  terms,  we  have  taken  into  account  the  distance  in  terms  of  estimated 
attractiveness  for  each  existing  PPP  and  we  have  weighted  this  distance  by  the  assets 
under management as a share of total financial assets in the respective EU member state. 
Based  on  the  model  of  consumer  choice  above,  this  mid-point  estimate  falls  within  a 
range  of  0.4  to  1.0  trillion  with  a  probability  of  95%.  As  per  the  mid-point  of  EUR0.7 
trillion,  also  the  confidence  interval  assumes  that  PEPP  would  be  granted  the  same  tax 
treatment as the national pension products in all Member States.  

Because for estimating market potential what matters is the distance of any national PPP 
to the German Riester product (as the one with the highest penetration/success index), the 
PEPP  can  be  expected  to  crowd  in  some  savings  from  alternative  savings  methods 
especially  for  those  products  that  have  the  highest  distance.  Nothing  could  be  inferred 
about the existing PPP schemes as they were not part of the alternative saving methods 
that have been modelled.  

Section C – Evolution of PEPP related investments asset classes under 3 scenarios 

In  order  to  then  quantify  the  extra  market-based  funding  available  to  the  EU  economy 
following the introduction of the PEPP, the following steps/assumptions have been taken: 

  although  PEPP  is  expected  to  be  provided  by  different  market  players  (e.g. 
insurance companies,  asset  managers, banks, etc..), it is  assumed  that, given the 
long  term  nature  of  these  products,  the  closest  available  proxies  in  terms  of 
possible asset allocation are pension funds;  the estimated current asset allocation 
of pension funds is then retained as the "central portfolio " (see step 1) 
in  order  to  take  into  account  possible  changes  of  economic  fundamentals  (that 
inevitably  influence  and  modify  the  ultimate  asset  allocation)  and  to  cater  for 
different  consumers  choices  when  it  comes  to  investment  strategy  options  for 
their PEPP, two additional potential portfolio allocations ("conservative portfolio" 
and "growth portfolio") were also designed (see step 2) 

 

Step 1 

In order to estimate the current pension funds' investment portfolio, the following sources 
have been considered: 

85 

 
   
 
 
 
  Mercer115  which  gathers  annually  detailed  information  about  the  investment 
strategy across the European pension industry (i.e. 14 EEA countries) from 1100 
institutional investors with total assets of almost EUR1 trillion   

  EIOPA116 which collects information from around 1600 occupational funds in the 

EEA and total assets under management of EUR3.2 trillion 

  OECD  annual  survey117  which  is  based  on  a  qualitative  and  quantitative 
questionnaire sent to the largest pension funds in the world (the data below refers 
to  December  2014  and  comprises  68  pension  schemes  with  a  total  of  USD3.7 
trillion of assets under management) 

Table B: Current asset allocation pension funds 

Even though the level of granularity and detail118 differ between the three sources, there 
is  an  overall  consistency  with  the  asset  classes,  which  are  then  retained  for  the  central 
asset  allocation  portfolio  and  for  the  construction  of  the  two  additional  portfolio 
allocations.  

Step 2 

The  table  below  shows  the  central  portfolio  (derived  from  the  information  collected  in 
Step  1  and  two  additional  potential  portfolio  allocations  (conservative  and  growth 
portfolio). 

Table C – The three portfolio allocations used in the simulations 

115   "European  Asset  Allocation 
survey.html#contactForm 

survey  2015" 

https://www.uk.mercer.com/our-thinking/2016-european-asset-allocation-

116    https://eiopa.europa.eu/financial-stability-crisis-prevention/financial-stability/statistics  -  the  data  shown  in  the  table  refers  to 
December  2015  and  excludes  assets  that  are  not  related  to  the  investment  portfolio.  Also  UCITS  invested  amounts    -  5%  of 
invested portfolio - have been attributed to the main asset classes 

117    http://www.oecd.org/daf/fin/private-pensions/2015-Large-Pension-Funds-Survey.pdf - OECD 2016 
118   As  noted  in  the  International  Organisation  of  Pension  Supervisors  ‘Good  Practices  in  the  Risk  Management  of  Alternative 
Investments by Pension Funds’ (IOPS Good Practices) although there is no precise definition of "alternative investments", the 
term  is  usually  applied  to  instruments  other  than  listed  equities,  bonds,  and  cash.  The  nature  of  alternative  investments  is 
dynamic and ever-evolving, and closely linked to the development of financial markets. For the purposes of OECD and Mercer 
survey,  “alternative”  investments  comprise  the  following  types  of  investments:  hedge  funds,  private  equity,  real  estate, 
infrastructure, commodities and “other”. 

86 

Total equity32%Equity33%Listed equity30%- Domestic equity21% - Listed equity29%- Non-domestic equity11% - Others4%Total bonds51%Debt securities55%Fixed income & cash55%- Domestic govern. bonds26%- Non-domestic govern. bonds4%- Domestic corporate bonds15%- Non domestic corporate bonds3%- Others3% - Other bonds9%Other investments17%Other investments12%Other investments15% -Property3% - Real estate7% -Unlisted infrastructure2% -Alternatives11% - Other investments5% -Alternatives13% -Cash3%Total100%Total100%Total100%OECDEIOPAMERCER34% - Sovereign Bonds -Financial Bonds12% 
   
 
 
 
 
 
 
 
                                                 
The conservative portfolio,  compared  to  the central  portfolio, is  characterized by lower 
investments  in  risky  assets  (equity,  real  estate,  alternatives)  and  more  investments  in 
safer assets (cash and debt securities including relatively more weight to sovereign bonds 
compared to financial and corporate bonds). The opposite reasoning  was applied to the 
growth  portfolio,  with  for  example  the  notable  increase  in  equity  and  decrease  in  debt 
securities.  In  the  growth  portfolio,  the  investment  manager  is  expected  to  also  increase 
the weight of risky/higher return/lower credit quality bonds, which explains the increase 
of investments in financial bonds and other bonds and the reduction in sovereign bonds.  

While  it  is  not  possible  to  foresee  the  exact  asset  allocation  (given  the  uncertainties 
around the preferred investment strategy option chosen by the PEPP holder and the future 
economic  fundamentals),  it  could  be  reasonably  assumed  that  the  probable  evolution 
would  be  within  the  three  scenarios  above.  Indeed,  the  asset  portfolio  evolution  from 
2008-2015 shows that pension funds adjusted their strategic allocation according to the 
economic fundamentals and market sentiment. For example, the portfolio mix has been 
changing during the last 8 years with debt and other fixed income securities gaining more 
weight, while investments in equity and other variable-yield securities somewhat falling 
(against  an  overall  higher  volume  of  the  AUM).  The  ranges  are  captured  above  in  the 
growth and conservative portfolios. 

Table D – The evolution of investment assets allocation from 2008 to 2015 – EIOPA statistical annex 

Section D – How PEPP could help hedge households financial risks in the context of 
retirement 

This section of the Annex provides additional detail on the types of risks in table 7 in the 
main  body  of  the  impact  assessment,  and  it  provides  the  references  to  the  literature 
reviewed.  

87 

Asset Classes RangesCentral portfolioConservative portfolioGrowth portfolioEquity33%25%40% -Listed equity29%22%34% -Other equity4%3%6%Debt securities55%63%46% -Sovereign Bonds34%40%20% -Financial Bonds12%13%14% -Other bonds9%10%12%Other investments12%12%14% -Real estate5%4%6% -Alternatives4%3%5% -Unlisted infrastructure2%2%2% -Cash1%3%1%Total100%100%100%Portfolio evolution IORPs - EIOPA20152014201320122011201020092008Equity and other variable-yield securities33%36%36%36%37%39%40%41%of which Listed equity29%32%32%33%35%36%39%37%of which other variable-yield securities4%4%3%3%3%2%2%4%Debt and other fixed income securities55%52%51%50%47%45%45%43%of which sovereign34%32%31%29%28%27%27%25%of which financial12%11%12%13%12%11%9%8%of which other9%9%8%9%7%8%9%10%Other investments12%13%13%14%15%16%15%16%Real estate investments7%7%7%7%7%7%7%8%Other investments5%6%7%7%8%8%7%8%Assets under management (EUR trillion)3.152.832.542.462.182.061.791.66 
   
 
 
 
 
 
 
 
 
 
 
RISK: Loss of capital, economic and financial cycle related risks 

Households' main residence remains one of the major savings mechanisms, but it often 
carries  important  unhedged  risks.  Reinhart  and  Rogoff  (2009)  have  collected  a  vast 
history  of  housing  market  crashes  and  report  losses  in  the  region  of  30-50%  for  house 
prices in advanced economies during adjustment in the 1970s, 1980s, and 1990s. Many 
advanced economies, including several EU Member States, have experienced significant 
negative adjustments since the 2007/8 crisis as well.  

Households'  main  residence  remains  in  many  Member  States119  the  most  important 
savings method to protect against poverty in old age, also via a strong element of "forced 
savings" (see also section on Lock-In). However, mechanisms to extract the equity from 
houses by other means than selling the house have remained scarce. As a result, the risk 
of  having  to  sell  the  house  at  a  particular  point  in  time  (around  retirement) 
continues  to  represent  a  major  financial  risk.  Given  the  presence  of  pronounced  house 
price cycles in many countries, having to sell the house during a bust or correction phase 
could wipe out large portions of life time savings. There is a need in a savings vehicle for 
the retirement age, and this is where a PEPP can rapidly make a huge difference.  

RISK: Inflation 

A risk attached to currency and deposits, equities and securities discussed in the literature 
is  inflation.  Indexed  bonds  can  provide  protection  against  this  risk.  Private  pension 
instruments, as argued by Feldstein (1981), thanks to their favourable tax treatment, have 
more  than  compensated  for  inflation  and  were  therefore  able  to  outperform  direct 
holdings of equity or securities. While this argument in the literature is based on the U.S. 
experience,  the  logic  carries  over  to  European  examples  in  those  cases  where  similar 
advantageous tax treatments for personal pension products have been granted. This is the 
case that clearly emerges from regression analysis carried out on the data gathered in the 
commissioned study (referred to as EPPF study in the impact assessment).  

IMPACT on savings: Lock In 

This is the strength of the pension promise; it is stronger the harder it is to get money out 
from  any  particular  savings  method.  In  the  context  of  the  discussion  on  the  economic 
added  value  of  a  PEPP,  the  main  risk  attached  to  currency  and  deposits  and  its  close 
substitutes  is  not  inflation,  but  rather  the lack  of  a  commitment  mechanism  forcing  the 
household to preserve them until retirement. A PEPP could help households reasonably 
lock in savings until retirement (including in cases where the household is moving across 
jurisdictions  pre-retirement).  The  importance  of  a  lock-in  can  hardly  be  overestimated 
given  the  well  demonstrated  myopia  of  households  that  leads  to  sub-optimal  levels  of 
savings as risks at longer time horizons are systematically underestimated. PEPPs, if well 
designed, would provide a welcome alternative to real estate, the only alternative saving 
method  with  a  very  strong  Lock-In,  while  avoiding  some  of  the  major  risk  attached  to 
real estate (see above).  

119  

Finance 

e.g.,  Household 

See, 
by 
2016 
(https://www.ecb.europa.eu/stats/ecb_surveys/hfcs/html/index.en.html);  another  database  on  European  countries  is  the  LWS  (Luxembourg  Wealth 
Study) database  (http://www.lisdatacenter.org/our-data/lws-database/ )  

and  Consumption 

of  which  was 

second  wave 

in  December 

the  ECB, 

conducted 

published 

(HFCS) 

Survey 

the 

88 

 
   
 
 
                                                 
IMPACT  on  savings:  Financial  literacy,  product  design,  online  distribution  and 
advice 

Households  with  low  financial  literacy  are  more  exposed  to  housing  market  and 
mortgage credit related risks. At the same time they will be less likely to buy a PEPP. On 
the  other  hand,  simple  and  clear  design  features  of  PEPPs  can  help  increase  financial 
literacy. The potential benefits of such increases are considered very significant based on 
findings  in  the  literature  (see  Lusardi  and  Mitchell  2014  for  an  overview).  In  addition, 
PEPPs  under  the  preferred  option  could  create  a  powerful  market  segment  for  Fintech 
online  comparison  tools,  including  those  based  on  Big  Data  and  advanced  data 
analytics.120  

References to the literatures reviewed: 

Cochrane, J.H. (2013) Function Matters, Not Size, The Journal of Economic Perspectives 

27(2), pp. 29-49. 

Draghi,  Mario,  Franceso  Giavazzi,  and  R.  Merton  (2004)  ‘Transparency.’  Risk 
Management and International Financial Fragility, Geneva Reports on the World 
Economy. 

Feldstein,  M.  (1981)  Private  Pensions  and  Inflation,  The  American  Economic  Review 

71(2), 424-28. 

Gompers  P.A.  and  A.  Metrick  (2001)  Institutional  Investors  and  Equity  Prices,  The 

Quarterly Journal of Economics 116(1), pp. 229-59. 

Groome, T., Blancher, N., Haas, F. P., & Kiff, J. (2006). The limits of market-based risk 
transfer  and  implications  for  managing  systemic  risks.  IMF  Working  Paper 
WP/06/217, September 2006. 

Kaliciak, A., R. Kurach, W. Merouani (2016) Who is Eager to Save for Retirement – The 

Cross-Country Evidence, LWS Working Paper No. 23. 

Lusardi,  A.  and  O.S.  Mitchell  (2014)  The  Economic  Importance  of  Financial  Literacy: 

Theory and Evidence, Journal of Economic Literature 52(1), pp. 5-44. 

Merton, Robert C., Monica Billio, Mila Getmansky, Dale Gray, Andrew W. Lo, Loriana 
for  Analysing  and  Managing 

Pelizzon 
Macrofinancial Risks, Financial Analysts Journal 69(2), CFA Institute. 

(2013)  On  a  New  Approach 

Reinhart,  C.M.  and  K.S.  Rogoff  (2009)  This  Time  Is  Different.  Eight  Centuries  of 

Financial Folly. Princeton University Press, p. 160. 

Sexauer, S.C. and L.B. Spiegel (2013) A Pension Promise to Oneself, Financial Analysts 

Journal 69(6), pp. 13-32 

Gray,  D.F.,  R.C.  Merton,  and  Z.  Bodie  (2007)  ‘Contingent  Claims  Approach  to 
Measuring  and  Managing  Sovereign  Credit  Risk.’  Journal  of  Investment 
Management, vol. 5, no. 4 (Fourth Quarter):5–28. 

Varian,  H.R.  (2010)  Computer  Mediated  Transactions,  AEA  Papers  and  Proceedings 

100(2), pp.1-10. 

Visco, I. (2006) Longevity Risk and Financial Markets, SUERF keynote address. 
Visco.  I.  (chair)  (2005)  Ageing  and  pension  system  reform:  implications  for  financial 
markets and economic policies. Report to the Deputies of the Group of Ten. 

120   The literature mentions a few caveats that should be kept in mind, however: Fintech providers of online comparison tools should 
ideally not be vertically integrated with PEPP providers. Even so, consumers may voluntarily disclose sufficient personal data 
using the online comparison tool to build a database that can track PEPP performance over time and match such performance to 
household characteristics. Challenges would remain given the demonstrated behavioural constraints households are facing when 
using online tools. 

89 

 
   
 
 
                                                 
Section E – Capital markets and funds stocks in the EU 

In  broader  sense  capital  markets  consist  of  debt  and  equity  markets  that  intermediate 
funds  between  savers  and  those  that  need  capital.  Capital  markets  financing  is  often 
labelled  "direct",  because  it  occurs  through  direct  exchange  of  securities  between 
investors  and  borrowers.  This  differs  from  "indirect"  financing  via  financial 
intermediaries,  notably  banks,  which  collect  deposits  from  savers  and  lend  funds  to 
borrowers.  The  latter  is  also  referred  to  as  the  "bank-based  model",  as  opposed  to  the 
"market-based  model"  in  the  case  of  direct  financing.  Whilst  capital  markets  are 
predominantly  concerned  with  direct  financing,  they  are  also  closely  interlinked  with 
financial  intermediaries  who  are  themselves  active  on  capital  markets.  Figure  I  below 
attempts to capture the main thrust of the flow of funds in an economy whereas capital 
markets and financial intermediaries link providers of funds and users of funds. Capital 
markets can be subdivided into private and public markets. The private equity market, for 
example, is an important source of funds for start-ups, middle-market (so-called midcap) 
companies, firms in  financial distress and public firms seeking buyout financing. Other 
segments include quoted shares and bonds and the market for private placement debt.  

Figure I – Flow of funds in an economy from providers of funds (left) to users of funds (right) 

The size of capital markets depends on the volume of funds being channelled. Ultimately, 
this depends on the willingness of ultimate savers to turn to other forms of financial asset 
holdings  than  bank  deposits.  Households  are  the  principal  net  savers  in  the  economy, 
whilst  both  the  public  sector  and  non-financial  corporations  (NFCs)  are  the  ultimate 
debtors (see Figure II below). 

Figure II – Data on funds stocks as of December 2015 – Billion EUR 

Source:  Eurostat  –  Consolidated  data;  **Other  financial  intermediaries:  insurance  companies,  investment  funds, 
pension funds and others 

90 

Monetary and Financial Institutions44,157Other financial intermediaries**40,120Bonds23,775Stocks10,445Public capital markets34,22084,277Financial intermediation (assets)Households10,047Non financial corporations33,035Governements15,347Use of funding (financial liabilities)58,429Households33,369Non financial corporations17,044Governements5,57455,987Provision of funding (financial assets) 
   
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Capital market activity has increased significantly in the EU over the last two decades. 
According  to  ECMI121  between  1995  and  2015,  the  total  EU  stock  market 
capitalisation  has  progressed  from  EUR2.7  trillion  (27%  of  GDP)  to  EUR  10.4 
trillion (71% of GDP), whilst the total value of outstanding debt securities has grown 
from  EUR  5.9  trillion  (84%  of  GDP)  to  EUR  23.8  trillion  (162%  of  GDP). 
Nonetheless,  a  number  of  EU  capital  markets  remain  relatively  underdeveloped  at 
least  compared  to  the  US122  also  due  to  the  fact  the  Europe  has  traditionally  relied 
more on bank finance. 

121   The  European  Capital  Markets  Institute  (ECMI)  is  an  independent  think-tank,  within  the  Centre  for  European  Policy  Studies 

(CEPS) 

122   For  example  while  Europe'  economy  is  slightly  lower  than  the  US  economy,  in  the  US  markets  for  public  equity  are  almost 

double in size (142% vs. 71% in the EU) and so are private equity markets. 

91 

 
   
 
 
 
 
                                                 
ANNEX 5: GLOSSARY AND LIST OF ABBREVIATIONS USED 

Accumulation 
phase 

Annuity 

The  period  during  which  funds  are  accumulated  (in-payments) 
in  the  pension  product  and  usually  runs  until  the  age  of 
retirement.  

A  sum  payable  at  specified  intervals,  mostly  annually,  over  a 
period, such as the recipient's life or a certain number of years, 
in return for a premium paid either in instalments or in a single 
payment.  

AuM 

Assets under management. 

Biometric risks 

Risks linked to death, disability and longevity. 

Capital Market 
Union (CMU) 

An  Action  Plan  of  the  European  Commission  to  mobilise 
capital in Europe.  

Decumulation 
phase  

The period during which accumulated assets are drawn upon to 
fund  retirement  or  other  income  requirements.  Sometimes  also 
referred to as payout phase. 

Debt 

Borrowings in the form of loans or bonds. 

Defined benefit 
(DB) schemes 

Pension  schemes  where  the  benefits  accrued  are  linked  to 
earnings and the employment career (the future pension benefit 
is pre-defined and promised to the member). It is normally the 
scheme  sponsor  who  bears  the  investment  risk  and  often  also 
the  longevity  risk:  if  assumptions  about  rates  of  return  or  life 
expectancy  are  not  met, 
its 
contributions  to  pay  the  promised  pension.  These  tend  to  be 
occupational  schemes  (see  also:  Defined  contribution  (DC) 
schemes). 

the  sponsor  must 

increase 

Defined 
contribution (DC) 
schemes 

Delegated Acts 

Pension  schemes  where  the  level  of  contributions,  and  not  the 
final benefit, is pre-defined: no final pension promise is made. 
DC  schemes  can  be  public,  occupational  or  personal: 
contributions  can  be  made  by  the  individual,  the  employer 
and/or the state, depending on scheme rules. The pension level 
depends  on the  performance  of  the chosen  investment  strategy 
and the level of contributions. The individual member therefore 
bears the investment risk and often makes decisions about how 
to mitigate this risk (see also: Defined benefit (DB) schemes). 

Article 290 of the TFEU allows the EU legislator to delegate to 
the  Commission  the  power  to  adopt  non-legislative  acts  of 
general  application  that  supplement  or  amend  certain  non-
essential elements of a legislative act. 

92 

 
   
 
 
 
Depository 

Directive 

ECB 

EIOPA 

For example, in Solvency II, the EU legislators have delegated 
the power to the Commission to adopt implementing rules. 

An  institution  charged  with  the  safe-keeping  of  assets  and 
oversight of compliance with the fund rules and applicable law. 

A  legislative  act  of  the  European  Union,  which  requires 
Member  States  to  achieve  a  particular  result  without  dictating 
the means of achieving that result. A Directive therefore needs 
to be transposed into national law - contrary to Regulations that 
have direct applicability. 

European Central Bank.  

EIOPA  is  the  European  Insurance  and  Occupational  Pensions 
Authority,  which  replaced  CEIOPS  on  1  January  2011  in  the 
context of European System of Financial Supervision. EIOPA is 
an independent Authority. 

EIOPA’s core responsibilities are to support the stability of the 
financial system, transparency of markets and financial products 
as  well  as  the  protection  of  insurance  policyholders,  pension 
scheme members and beneficiaries. 

ESMA 

ESMA  is  the  European  Securities  and  Markets  Authority  and 
part of the European System of Financial Supervision.  

Funded scheme 

A pension scheme whose benefit promises are backed by a fund 
of assets set aside and invested for the purpose of  meeting  the 
scheme's  liability  for  benefit  payments  as  they  arise.  Funded 
schemes  can  be  either  collective  or  individual  (see  also:  Pay-
As-You-Go schemes). 

GDP 

Gross domestic product. 

Hybrid pension 
scheme 

A pension scheme with both Defined Contribution and Defined 
Benefits elements or, more generally, a scheme where the risk is 
shared by the scheme's operator and beneficiaries. 

IDD 

Information 
disclosure 
regulations 

Institutional 
investor 

Insurance  Distribution  Directive,  setting  rules  for  the  sale  of 
insurance products and insurance-based investment products by 
insurance  intermediaries  and  insurance  companies  (Directive 
(EU) 2016/97 of the European Parliament and of the Council of 
20 January 2016 on insurance distribution) 

The rules prescribing the periodicity, procedure, type and extent 
of information to be provided to members of pension products 
and/or the supervisory authority. 

Generally refers to a group of investors such as pension funds, 
insurance  companies,  investment  funds  and,  in  some  cases, 

93 

 
   
 
 
banks. 

IORP 

Institutions  for  occupational  retirement  provision  (IORP): 
financial institutions that manage collective retirement schemes 
for employers to provide retirement benefits to their employees 
(i.e. pension scheme members and beneficiaries). 

Lump sum 

Payment of an amount in one single payment.   

Markets in 
Financial 
Instruments 
(MiFID / MiFID II 
/ MiFIR) 

OECD 

Occupational 
scheme  

legislation 

the 
Set  of  financial 
authorisation and organisation of investment firms, the structure 
of  markets  and  trading  venues,  and  the  investor  protection 
regarding financial securities. 

laying  down  rules  for 

The Organisation for Economic Co-operation and Development 
is  an  international  economic  organisation  of  34  countries 
founded  in  1961  to  stimulate  economic  progress  and  world 
trade. 

A  pension  plan  where  access  is  linked  to  an  employment  or 
professional  relationship  between  the  plan  member  and  the 
entity  that  sets  up  the  plan  (the  plan  sponsor).  Occupational 
pension schemes may be established by employers or groups of 
employers (e.g. industry associations) or labour or professional 
associations, jointly or separately, or by self-employed persons. 
The scheme may be administered directly by the sponsor or by 
an independent entity (a pension fund or a financial institution 
acting as pension provider). In the latter case, the sponsor may 
still  have  responsibility  for  overseeing  the  operation  of  the 
scheme. 

Pay-As-You-Go 
(PAYG) schemes 

Pension  schemes  where  current  contributions  finance  current 
pension expenditure (See also: funded schemes). 

Pay-out phase 

The  period  during  which  a  person  receives  income  from 
pension savings accumulated before retirement.  

Pension protection 
scheme 

Pension gap 

to  members  or 
to  pay  compensation 
An  arrangement 
beneficiaries of  pension schemes  in  the event of insolvency of 
to the pension fund and/or sponsoring employer. Examples of a 
pension  protection  scheme  include  the  Pensions-Sicherungs-
Verein  Versicherungsverein  auf  Gegenseitigkeit  (PSVaG)  in 
Germany and the Pension Protection Fund in the UK. 

The pension gap is the difference (or gap) between the pension 
individuals  on  an  aggregated  basis  can  currently  expect  to 
receive  (from  a  possible  combination  of  state,  workplace  and 
personal pensions) and the amount individuals on an aggregated 
basis  are  likely  to  need  for  an  adequate  standard  of  living  in 
retirement. 

94 

 
   
 
Pension pillar  

Different  types  of  pension  schemes  are  usually  grouped  into 
two, three, four or more pillars of the pension system. There is 
however  no  universally  agreed  classification.  Many  pension 
systems  distinguish  between  statutory,  occupational  and 
individual  pension  schemes,  or  between  mandatory  and 
voluntary  pension  schemes.  Participation  in  occupational  and 
individual  pension 
schemes,  usually  private  pension 
arrangements, can be mandatory or voluntary. 

Pension Scheme 

A  contract,  an  agreement,  a  trust  deed  or  rules  setting  out  the 
retirement benefits that are granted and their conditions. 

Portability of 
occupational 
pensions 

PPP 

PRIIPs 

It  refers  to  the  transferability  of  occupational  pension  rights. 
The  Directive  on  improving  the  portability  of  supplementary 
pension  rights  provides  minimum  requirements  for 
the 
acquisition  and  preservation  of  pension  rights  for  mobile 
citizens. 

Personal pension products. 

Regulation  on  the  format  and  content  of  key  information 
documents to be drawn up by manufacturers of packaged retail 
and  insurance-based  investment  products (Regulation  (EU)  No 
information 
1286/2014  of  26  November  2014  on  key 
documents  for  packaged  retail  and  insurance-based  investment 
products). 

Public or state 
pension 

Public  pensions  are  those  provided  by  the  state  or  local 
government  and  financed  from  social  security  contributions  or 
general tax.  

Occupational or 
workplace pension 

Occupational pension schemes are when the employer organises 
a pension scheme for its employees. See also IORP. 

Replacement rate 

Generally  refers  to  an  indicator  showing  the  level  of  pension 
income after retirement as a percentage of individual earnings at 
the  moment  of  take-up  of  pensions  or  of  average  earnings. 
Replacement rates measure the extent to which pension systems 
enable typical workers to preserve their previous living standard 
when moving from employment to retirement.  

Regulation 

A  legislative  act  of  the  European  Union  legislation  which  has 
direct legal effect in the Member States' legal order. 

Regulator 
/Supervisor 

A  regulator/supervisor  is  a  public  authority  designated  by  a 
Member State to supervise that country's financial markets. 

Retail investor / 
client/ saver 

A  person  investing  his/her  own  money  on  a  non-professional 

basis. 

Small  and  medium 
enterprises 
sized 

On  6  May  2003  the  Commission  adopted  Recommendation 
2003/361/EC regarding the Small and medium sized enterprise 

95 

 
   
 
(SMEs) 

Solvency II 

definition.  While  'micro'  sized  enterprises  have  fewer  than  10 
employees, small have less than 50, and medium have less than 
250. There are also other criteria relating to turnover or balance 
sheet total that can be applied more flexibly. 

Solvency II is the usual denomination of Directive 2009/138/EC 
on  the  taking-up  and  pursuit  of  the  business  of  Insurance  and 
Reinsurance. 

Supplementary 
pensions  

Mandatory  or  voluntary  occupational  or  personal  pension 
schemes  which  generally  provide  additional retirement  income 
to the state based pension scheme. 

for 

Undertakings 
Collective 
Investment 
Transferable 
Securities 
Directives (UCITS) 

in 

for  Collective 

Undertakings 
in  Transferable 
Securities Directives, a standardised and regulated type of asset 
pooling. 

Investment 

96 

 
   
 
 
 
 
ANNEX 6 - MARKET DESCRIPTION OF PERSONAL PENSIONS 

1. Introduction 

The current EU market for personal pensions is mainly locally organised, mainly due to 
linkages  with  local  tax,  social  and  contractual  laws.  As  a  consequence,  market  data  is 
fragmented and also diverse, also due to the varying classification in the various Member 
States of pension assets in state pensions, occupational pensions and private pension (see 
also Introduction, Box 1). 

Three  broad  sources  of  market  data  have  been  used  to  get  a  broad  picture  of  the  EU 
private pension market: 

1) OECD data123 

2) EIOPA data124 

1. OECD Statistics on private pensions  

The 2016 OECD report on private pensions contains the following main messages as 
regards the worldwide private pensions market:  

a.  Private  pension  assets  are  worth  more  than  USD  38  trillion  and  are  mainly 
managed by pension funds 

Private  pension  assets  reached  USD  38  trillion  worldwide  in  2015.  Assets  invested 
through all pension vehicles in financial markets amounted to USD 36.9 trillion in the 35 
OECD countries in 2015, and amounted to USD 1.3 trillion in a sample of 45 non-OECD 
countries.  Pension  funds  were  the  main  investors  of  these  assets  worldwide  (USD  26 
trillion,  68%  of  the  total),  followed  by  banks  and  investment  companies  (USD  7.7 
trillion, 20.2%), insurance companies (USD 4.3 trillion, 11.3%) and employers through 
their book reserves (USD 0.2 trillion, 0.5%). 

b. The importance of private pension systems across countries is uneven 

The  size  of  investments  through  pension  vehicles  varies  across  countries.  The  largest 
values  of  invested  assets  in  USD  values  are  located  in  North  America  (United  States, 
Canada),  Western  Europe  (United  Kingdom,  Netherlands,  Switzerland),  Australia  and 
Japan.  Private  pension  invested  assets  are  also  high  when  compared  to  the  size  of  the 
domestic economy in other countries, such as Chile, Denmark and South Africa, where 
they accounted for 70%, 206% and 97% of GDP in 2015, respectively. Private pension 
assets,  however,  still  represented  around,  or  less  than,  20%  of  GDP  in  more  than  50 
countries in and outside the OECD area in 2015. 

2. Market Description from the EIOPA technical advice  

123 Pension statistics and periodic reports:  
      https://www.oecd.org/daf/fin/private-pensions/Pension-Markets- in-Focus-2016.pdf  

97 

 
   
 
 
 
 
 
                                                 
 
The  EIOPA  technical  advice  on  personal  pensions  confirms  that  the  market  take-up  of 
personal  pensions  is  low.  The  advice  states  that  assets  under  management  for  personal 
pensions  represent  1.1  Trillion  Euro,  representing  only  67  million  of  savers 
(approximately 13% of the total population of the European Union). It should be noted 
that the definition in the EIOPA technical advice is distinct from the EPPF study, as the 
first also covers to some extent occupational pensions. Nevertheless, both studies indicate 
an overall low market take-up of personal pensions in the European Union.    

The chart below presents a breakdown of the volumes per Member State, and compares it 
to  the  population  per  Member  State.  It  reflects  important  differences  in  volumes  per 
Member State as compared to population. It should be noted that the need for developing 
3rd pillar personal pensions also depends on the retirement income to be expected of first 
and  second  pillar  pensions  in  the  respective  Member  States.  It  shows  that  personal 
pension markets are well developed in Belgium, Germany, the Netherlands and the UK, 
since in these Member States the share of personal volumes expressed as a percentage of 
the  total  EU  volumes  is  significantly  higher  than  the  share  of  the  population  as  a 
percentage of the total EU population. 

Based  on  Chart  1,  the  largest  market  potential  for  PEPP's  can  be  expected  in  countries 
that  have  less  developed  pension  markets  and  which  are  mostly  in  the  eastern  and 
southern  part  of  the  European  Union.  Providers  from  Member  States  with  better 
developed  "third  pillar"  pension  systems  could  benefit  from  increased  possibilities  of 
cross-border  provision  of  PEPPs.  There  is  a  significant  potential  for  development  in 
Spain, France, Italy, Poland and Romania125.  

125 For the following Member States data were missing: Austria, Cyprus, Greece and Finland. 

98 

 
   
 
                                                 
Chart  1:  Assets  under  management  (AUM)  in  personal  pensions  compared  to  total 
2015.
population 

percentage, 

Member 

State, 

by 

in 

in 

MT LU CY EE LV SI LT HR IE SK FI DK BG AT HU SE PT CZ EL BE NL RO PL ES IT UK FR DE

AUM in % of EU total

Population in % of EU total

25,0%

20,0%

15,0%

10,0%

5,0%

0,0%

25,0%

20,0%

15,0%

10,0%

5,0%

0,0%

MT LU CY EE LV SI LT HR IE SK FI DK BG AT HU SE PT CZ EL BE NL RO PL ES IT UK FR DE

AUM in % of EU total

Population in % of EU total

Source: EIOPA, Eurostat 

99 

 
   
 
 
 
Chart  2  below,  shows  important  household  funds  available  in  the  form  of  deposits.  If 
only a small part of these funds could be channelled in third pillar pension products, they 
could be transformed in long term investments contributing to the objective of a CMU.  

Chart  2:  Household  assets  (provision  of  funding  by  instrument,  2015,  percentage  of 
GDP) 

400%

350%

300%

250%

200%

150%

100%

50%

0%

400%

350%

300%

250%

200%

150%

100%

50%

0%

Other assets
Loans
Bonds
Investment funds
Pension entitlem
Insurance
Quoted shares
Other equity
Currency & deposits
Assets other than Curr & Dep (%, rhs)

NL UK DK BE SE MT CY IT EU FR EA PT ES AT DE IE FI EL LU HR HU CZ LV SI EE PL LT RO

Other assets
Loans
Bonds
Investment funds
Pension entitlem
Insurance
Quoted shares
Other equity
Currency & deposits
Assets other than Curr & Dep (%, rhs)

160%

140%

120%

100%

80%

60%

40%

20%

0%

160%

140%

120%

100%

80%

60%

40%

20%

0%

NL UK DK BE SE MT CY IT EU FR EA PT ES AT DE IE FI EL LU HR HU CZ LV SI EE PL LT RO

Source: EFSIR report 2016 

100 

 
   
 
 
 
 
 
 
 
ANNEX 7 – SYNTHESIS OF POLICY OPTIONS FOR THE PEPP FEATURES (KEY AND OTHER 

FEATURES) 

Name 

Description 

Possible 
preferred) 
options  

(and 
policy 

Pros 
cons  

and 

Stakeholder 
preference  

Key features 

Distribution 

include 

Distinct 
distribution 
channels 
can 
be employed to 
sell  PEPPs  to 
individuals. 
These 
traditional 
channels  such 
as 
physical 
distribution,  an 
agents 
network, 
online 
distribution. 

or 

Advice  ensures 
that  individuals 
obtain the most 
favourable 
outcomes. 
Advice  at 
the 
time  of  sale  of 
product 
the 
could 
be 
beneficial.  

that 

well-

Precontractual 
information 
requirements 
ensure 
individuals 
make 
informed 
in 
choices 
PEPPs.  Main 
issues:  type  of 
information, 
timing 
format 
disclosures.  

and 
of 

a)  Existing sectoral 

b) 

legislation 
applies  
 Full standalone 
regime for 
PEPP  

c)  Combination of 
specific add-on 
rules with 
application of 
sectoral rules 

could 

is  simple 
respects 

a) 
and 
sectoral 
specificities.  b) 
and c) possibly 
on 
distortive 
competition 
and  adds 
to 
costs  base  of 
providers. 
Hybrid 
combine 
sectoral 
and 
PEPP  specific 
advantages: 
ensure 
coherence 
between 
sectoral 
regimes 
long 
PEPP 
purpose.           

and 
term 

in 
of 
and 

Retail 
investors 
favour 
simple 
inexpensive 
distribution 
system  based 
on  electronic 
sales  of  non-
complex 
products. 

Consumer 
associations 
favour  simple 
and 
inexpensive 
advice system 
at 
aimed 
younger 
generations 
including 
online  advice. 
Some 
consumer 
organisations 
were 
opposing 
mandatory 
advice 
to 
avoid  risks  of 
miss-selling of 
the  product  in 
case 
of 
biased 
advice.  

is 
it 
be 

If  advice 
provided, 
should 
independent 
to  allow 
appropriate 
choice  of  the 
product.    

for 

Ongoing 
disclosure 
would 

be 

101 

 
   
 
 
 
 
 
 
Investment 
options  and 
mitigation  of 
investment 
risks  – 
for 
PEPP savers  

provided  for  in 
PEPP 
any 
regime 

Investments  of 
funds 
the 
would 
determine 
the 
outcome  of  the 
product  at  the 
age 
of 
retirement  and 
should 
take 
into  retirement 
objective,  allow 
for 
an 
appropriate 
balance 
between 
and 
and 
account 
individual's 
needs.  Main 
topics  are  the 
default  option 
and  alternative 
investment 
options. 

risk 
returns 
into 

take 

Investment 
rules 
PEPP 
providers  

for 

Switching  of 
providers  

After  signature 
of  the  contract, 
individuals 
might  want  to 
switch 
from 
one  provider  to 
another. 
To 
what 
extent 
should 
be 
switching 
and 
flexible 
under 
which 
conditions  can 

a)  No requirements 

for risk 
mitigation 
b)  Type of capital 
protection 
mandatory for 
the default 
option, risk 
mitigation 
technique 
mandatory for 
the other 
investment 
options (choice 
left to the 
provider) 
c)  Type of capital 
protection 
mandatory for 
all investment 
options 

and 

would 

b) 
provide 
additional 
consumer 
protection, 
encourage 
take-up 
enhance 
cross-border 
development 
through 
standardisation 
of  the  default 
option.  Capital 
protection 
be 
could 
offered  by  all 
providers, 
except 
asset 
managers 
where 
'life 
cycling'  would 
the 
be 
alternative 
for 
providing 
financial 
guarantee.      

for 

Consumer 
organisations 
that 
consider 
savers  should 
be  sufficiently 
protected 
for 
their  savings 
for  retirement. 
In  particular 
they 
request 
to  ensure  that 
at 
the 
lest 
funds  saved 
would 
be 
available  on 
retirement, 
possibly 
corrected 
inflation. 
Providers 
consider 
multiple 
possibilities 
for  mitigation 
of  investment 
risk should be 
available  and 
that it is up to 
the  provider 
to  determine 
the 
applied 
risk  mitigation 
technique. 

that 

for 

b) 

a)  No investment 
rules for PEPP 
providers 
Introduce a 
general principle 
of prudent 
investment   
Introduce 
investment 
targets 
(baseline) 

c) 

No 
for 

a) 
requirements 
switching 

b)  Switching  without 
costs 

c) Switching with costs  

d) Cap on exit costs 

102 

too 

Avoid 
detailed 
investment 
to 
regulation 
allow 
for 
greater take-up 
on the provider 
side    

All  providers 
requested 
flexibility 
regards 
investment 
options.  

as 

offers 
in 
CMU 

d) 
maximum 
terms 
perspective 
and  more  so  if 
periodic 
switching 
framed. 
Balance 
between 
consumer 
protection  and 
boosting 

is 

Individuals 
and consumer 
organisations 
request 
flexible 
switching  of 
providers, 
preferably 
without costs.  

Providers 
consider 
switching 

that 

 
   
 
 
 
it be limited? 

competition 

the 

in 
should 
principle 
be 
possible,  but 
limited in view 
of 
long 
term nature of 
the  product. 
Under  certain 
financial 
market 
situations 
switching  can 
be 
very 
expensive  for 
providers.  
Some 
providers 
request 
minimum 
to 
duration 
hold 
the 
product  and 
other  request 
switching 
should 
be 
subject  to  exit 
costs. 

a 

Portability  

Portability 
concerns  how 
to  deal  with 
individuals 
moving  cross-
borders  while 
maintaining  the 
same  product 
and provider. 

a)  No  specific  provision 
on 
cross-border 
portability and supply 

b)  enhance  mobility  by 
standardising 
information 
exchange 
between  supervisors  + 
information 
ensuring 
flows  on  pensions 
in 
home and host MS  and 
ensure  transferability  of 
assets within a PEPP 

b) could trigger 
exit 
tax 
charges 
but 
achieves 
maximum 
portability 
allowing 
for 
costs reduction 
by 
standardisation 
and economies 
of scale. 

that 
is 

Individuals 
and consumer 
organisation 
consider 
portability 
very 
important, 
especially  for 
mobile 
workers.  

Decumulation  The 

product 
phase  after  the 
age 
of 
retirement.  

(baseline) 

a) 
requirements  on 
form of decumulation 

No 
the 

Mandate 

b). 
decumulation 
(e.g. annuities)  

one 
option 

c) 
offers 
maximum  level 
playing 
field 
between 
providers, 
flexibility  as  to 
national 
regimes.    

c)    Mandate  flexibility  of 
decumulation  PEPP 
providers 
be 
allowed  to  develop  all 
possible 
of 
decumulation. 

should 

types 

103 

Individuals, 
Consumer 
associations, 
and  providers 
request 
flexibility 
as 
the 
regards 
decumulation 
options. 
Insurers 
request 
take 
account 
retirement 
objective 
the 
decumulation 

to 
into 
the 

for 

 
   
 
Other 
features 

Regulation  of 
and 
costs 
charges   

In  view  of  the 
on 
impact 
the 
returns, 
question 
is 
these 
whether 
should 
be 
regulated  and, 
is 
if 
the 
under 
case, 
which 
parameters.     

this 

a)  Establish  a  cap  on 
and 
charges, 
costs 
based 
product 
on 
features  and  market 
conditions. 

Establish 
b) 
transparency 
based 
requirements  based  on 
PRIIPs, IDD, IORP II).    

Guarantee 
for  biometric 
risk   

a)  Member 
option 

States' 

b)  Mandatory  guarantee 
on biometric risk 

phase. 

Individuals 
and consumer 
organisations 
that 
consider 
and 
costs 
should 
fees 
be 
transparent 
and 
possibly 
capped 
maximum. 

to  a 

low, 

Specific 
regime 
benefits 
playing 
between 
providers, 
enhances 
return 
savers 
enhances 
competitive 
pricing.    

level 
field 

for 
and 

that 

Providers 
consider 
transparency 
of fees should 
be  sufficient 
ensure 
to 
competition.  

Some  MS  in 
of 
favour 
strong 
consumer 
protection. 
Low    demand 
by  consumer 
organisations 
for 
such 
guarantee    

a) 
provides 
maximum  level 
playing 
field 
between 
providers  and 
better 
possibility 
to 
tailor  for  local 
tax regimes. 

could 

b) 
possibly 
exclude  asset 
managers  
consequences 
in 
terms  of 
potential 
providers  and 
the 
limiting 
market 
to 
insurers, 
pension  funds, 
banks.  

Depositary 

additional 
An 
safeguard 
for 
investors  could 
be  to  introduce 
depositary 
function 

to 

a)  Do  not  mandate  an 
independent  depositary 
function 

b) 
an 
Mandate 
independent  depositary 

104 

b) 
allows 
avoiding  fraud 
or  custody  risk 
the 
in 
management 
(or  valuation) 

No 
preferences 
expressed 

 
   
 
 
 
 
 
 
 
      
of  assets  and 
that 
ensure 
of 
assets 
scheme 
are 
not lost in case 
of  bankruptcy 
the  PEPP 
of 
provider 

Better  investor 
protection 
although 
additional 
costs 
in 
addition  to  risk 
mitigation.   

Some  MS  in 
favour of strict 
prudential 
requirements.  

Other 
elements  of 
prudential 
supervision 

reduce 
fraud/custody 
risks    

function 

PEPP 

providers 
a) 
their 
subject 
respective  current  EU 
regimes 

to 

PEPP 

b) 
providers 
subject  to  a  new  EU 
regime 

105 

 
   
 
 
 
 
 
 
ANNEX 8 – DISTRIBUTION: DESCRIPTION OF POSSIBLE ADD-ON PROVISIONS 

This Annex presents in detail possible policy options on advice, information to the PEPP 
saver and electronic distribution. 

Advice:  In  light  of  the  importance  of  the  decision  regarding  the  choice  of  PEPPs  for 
retirement in income (depending on other sources of wealth), savers should benefit from 
appropriate  advice  prior  to  a  final  decision  –  except  in  well-delineated  circumstances. 
The PEPP framework should ensure that PEPP savers all over the single market can get a 
personal recommendation based on an in-depth assessment of their financial situation and 
investment  objectives126.  The  relevant  provision  could  build  on  the  suitability  test  that 
exists already in MiFID II and IDD and adapt it to the specific retirement objective of the 
PEPP.127. 

Retail investors should, however, also have the possibility to buy the PEPP in its default 
option without in-depth advice. This exception would again follow the model of MiFID 
II and IDD128. It would be justified by the fact that the default option would have to be 
strictly limited to clearly defined low-risk investments. The possibility of a sale without 
advice  in  the  low-risk  configuration  would  come  close  to  a  proposal  by  consumer 
organisations for a simple product that can be marketed over the internet without advice. 
This would save costs of advice for providers and allow for easy online and cross-border 
sales.  It  could  also  help  to  improve  the  take-up  of  PEPPs  in  particular  with  younger 
consumers  who  might  be  reluctant  to  undergo  advice  sessions  for  their  retirement 
planning. On the other hand, buyers would have to be aware that in an advised sale they 
could  obtain  a  product  that  might  be  better  adapted  to  their  demands  and  needs.  Still, 
given the low-risk profile of the default option, this choice could be left to the consumer. 

When  asked  whether  they  consider  that  there  should  be  mandatory  advice  for  the 
provision  of  personal  pensions,  the  greater  part  of  business  representatives  (mostly 
insurers,  pension  funds,  banks,  as  well  as  their  associations)  participating  in  the  Public 
Consultation  reply  that  pensions  products  are  normally  long-term  products  that  require 
individual  advice,  regardless  of  distributed  on  provisions  or  fees.  Given  the  fact  that 
members and potential members of personal pension schemes are not always sufficiently 
financially literate, advice is seen as important and mandatory. However, there are views 
(mainly  from  think  tanks  and  smaller  companies)  that  advisory  services  should  not  be 
mandatory  and  should  be  linked  to  the  complexity  and  costs  of  the  PPP,  taking  into 
account  the  situation  of  every  member.  It  is  stressed  that  some  consumers  have 
knowledge and experience to make their own decisions. 

126   In the existing sectorial EU legislation, rules on advice are based on a distinction between two levels: 
In an assessment of suitability, the distributor obtains information on (a) the customer's knowledge and 
experience in the relevant investment field, (b) the customer's financial situation and (c) the customer's 
investment objectives in order to recommend a product that is suitable for the customer (see Article 
25(2)  MiFID  II  and  Article  30(1)  IDD).  In  the  more  limited  assessment  of  appropriateness,  the 
distributor  must  only  obtain  information  about  the  customer's  knowledge  and  experience  in  the 
relevant  investment  field  in  order  to  assess  whether  the  product  is  appropriate  for  the  customer  (see 
Article 25(3) MiFID II and Article 30(2) IDD). 

127   Financial  Services  Authority,  Suitability  Standards  for  advice  on  personal  pensions:  feedback  on 
(2007),  http://www.fsa.gov.uk/pubs/cp/fs07_01.pdf  

CP05/08‟  Feedback  Statement,  FS07/01 
(accessed 14 January 2017). 

128   See Article 25(4) MiFID II, Article 30(3) IDD. In the case of IDD, Member States have the option to 

allow execution-only sales. 

 
 
                                                 
Pre-contractual  product  information:  The  PEPP  framework  should  also  provide  for 
appropriate  rules  on  pre-contractual  product  information  documents.  In  this  respect,  it 
should as far as possible build on the application of the PRIIPs Regulation while adapting 
the  KID  to  the  PEPP's  retirement  purpose  to  enable  investors  to  select  the  most 
appropriate  pension  product.  A  specific  PEPP  KID  would  contribute  to  creating  the 
specific  "PEPP"  label,  set  a  level-playing  field  between  providers,  and  maximise  the 
distribution potential of the product.  

On the Public Consultation question on what information is most relevant to individual 
savers  before  signing  up  to  a  product,  the  respondents  from  all  business  fields  almost 
unanimously  consider  the  information  on  the  tax  regime  for  contributions,  returns  and 
pay-outs  as  very important. The information  on the provided level of protection is also 
assessed as being such. The opinions are more divided (between the assessments "very 
important" and "fairly important") on the information about available investment options, 
different types of fees and level of fees disclosed annually. Less importance seems to be 
assigned by the professional stakeholders to the information on the rate of return over the 
last  two  years  and  on  information  provided  in  a  standardised  format  (similarly  to  the 
PRIIPs KID). 

Inducements:  Conflicts  of  interest  in  the  context  of  the  payment  of  commissions  and 
other forms of inducements, are a major source of mis-selling and loss of trust on the side 
of consumers. Consumer organisations have consistently required effective mechanisms 
of  management  of  conflicts  of  interest  and  protection  against  abusive  inducements.  It 
would  therefore  be  advisable  to  provide  add-on  rules  ensuring  an  appropriate  common 
standard  of  protection  which  could  be  modelled  on  the  standards  of  existing  EU 
legislation (MiFID II, IDD). This would ensure a level playing field for distributors while 
guaranteeing high professional standards for consumers. 

Information during the contract: The PEPP framework should ensure regular, relevant 
and  comprehensive  information  of  customers  about  key  data  of  their  PEPP  during  the 
contract  life,  such  as  the  development  of  the  investments  and  estimated  pension 
entitlements. The relevant provisions could build on the IORP II129 provisions to inform 
members  during  accumulation  (including  the  Pension  Benefit  Statement130)  and 
beneficiaries  during  decumulation131.  This  would  allow  PEPP  savers  to  take,  where 
necessary, action by modifying the product, adapting the underlying investment assets or 
even switching the provider. Providers would have to incur additional costs for providing 
the  information.  However,  it  should  already  be  a  general  practice  in  the  industry  to 
provide  customers  of  PPPs  with  a  certain  amount  of  regular  information  so  that  they 
would only have to adapt their procedures. 

Asked in the Public Consultation about what information is most relevant to individual 
savers during the lifetime of the product, professional stakeholders are almost unanimous 
(whatever their business field) that the information on accumulated benefits, the level of 
fees and on the tax treatment of savings is of utmost importance, although the other types 

129   Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the 
activities and supervision of institutions for occupational retirement provision (IORPs) (recast) (OJ L 
354 of 23 December 2016, p. 37). 

130   See Articles 38 to 40 and Article 42 of the IORP II Directive.  
131   See Articles 43 to 44 of the IORP II Directive. 

107 

 
   
 
 
 
                                                 
of information (current and available investment options, the rate of return, the level of 
protection provided and the expected benefits at retirement) are also assessed as being of 
certain significance. 

Electronic distribution: In view of the need to focus distribution of PEPPs on younger 
people ("generation Y" or "millenials", digital natives) so that they start accumulating in 
their  early  years,  the  distribution  regime  would  have  to  facilitate  internet  distribution. 
According to the professional stakeholders (whatever their sector) who responded to the 
Public  Consultation,  the  distribution  channel  mostly  favoured  by  them  in  order  to 
maximise  the  benefits  and  efficiency  gains  of  a  Single  Market  for  personal  pensions  is 
the online channel. 

108 

 
   
 
 
 
 
 
 
 
 
 
ANNEX 9 - COST OF SWITCHING AND ADVICE  

A. SUMMARY FINDINGS 

Consumers  usually  incur  costs  in  three  areas  (financial  advice,  investment  related 
expenses  and  cost  of  switching).  These  should  be  considered  separately  in  our 
assessment. Publicly available data shows the following range of costs in each area. 

1. Costs of financial advice (including pensions advice) 

Typically the service of providing financial advice involves an initial consultation (which 
is charged fixed or hourly) or fees on AUM or a combination of both. 

  Hourly  rate  -  £75/€87  to  £350/€406.  UK  average  £150/€174  (www.unbiased.co.uk, 

March 2016) 

  Full  pension  advice  (at  retirement)  -  £2500/€2900  on  a  pension  pot  of 

£200,000/€232,000 (1.25%)  

  Some advisors charge 1%-2% per annum through the life of the investment, but there 
are no clear statistics of how much the advice costs as a percentage of total expenses 
incurred by the consumer. 

2. Total investment related expenses (as percentage of AUM132) 

  1% expenses incurred by investors in funds (Source: Morningstar, August 2016) 

3. Cost of switching  

This  cost  depends  on  the  asset  class  (which  drives  the  bid-offer  spread)  and  surrender 
charges for individual funds. 

  The bid-offer spread can be up to 5% of the value of the investment. 
  Early surrender charges can be between 1% to 5% depending on the time for which 

the investment is held. 

In summary: 

  For  an  investment  portfolio  of  €200,000  a  two-hour  consultation  with  a  financial 
advisor would cost circa 0.17% of the portfolio value (and in addition, in some cases 
may have a 1% per annum advisory cost). 

  Assuming  the  investment  is  made  in  standardised  (UCITS  type)  funds,  the  annual 

expenses related to the investment would be roughly 1%-1.5% per annum. 

  Switches,  if  performed  regularly,  would  be  prohibitively  expensive.  However,  for 

major asset relocation, the one-time cost could from 1% up to 5%. 

Note-  The  above  figures  are  based  on  publicly  available  data  and  do  not  necessarily 
represent the costs in a newly designed PEPP product. 

132   AUM = Assets under management 

109 

 
   
 
                                                 
B. DETAILED FINDINGS133 

Source 1 – (UK) How much does a financial adviser charge?134 

A  financial  adviser’s  fees  vary  depending  on  what  they  are  charging  for  and  how 
consumers pay. These include: 

  An hourly rate - this will vary from £75 an hour to £350, although the UK average 

rate is about £150 an hour. 

  A  set  fee  for  a  piece  of  work  -this  could  be  several  hundred  or  several  thousand 

pounds. 

  A  monthly  fee  -this  could  be  a  flat  fee  or  a  percentage  of  the  money  a  consumer 

intends to invest. 

  An ongoing fee -an adviser can only charge an ongoing fee in return for providing an 
ongoing service, unless the consumer is paying off an initial charge over time through 
a regular payment product. 

Source 2 – (UK) How much does a financial adviser charge?135 

Typical ways that advisers may charge include: 

  Fixed fee – The adviser will perform a specific service (such as setting up an annuity) 

for a set price agreed in advance.  

  Percentage of assets – An adviser who is managing your investment portfolio over a 
period  of  time  may  charge  a  percentage  of  the  portfolio’s  total  value,  rather  than  a 
fixed fee. 

  Hourly rate – Some advisers may charge an hourly rate for certain services (£150 per 

hour is the UK average).  

Typical costs work out as follows: 

Advice scenario 

General 

 Initial financial review / review 

 Advice and set up of £11,000 investment  ISA 

Typical 
cost* 

£500 

£450 

Investment  

 Investment strategy for a £50,000  inheritance for a 50yr old 
seeking medium  term growth 

£1,500 

Retirement 
planning  

 Advice on an £80 a month pension  contribution 

 Advice on a £200 a month pension  contribution 

£500 

£580 

Advice  on  transferring  a  £30,000  pension  with  guaranteed 
annuity rates 

£900 

133   Exchange rates used in this note £1=€1.16 
134   Source: Money Service Advice UK. Link to the article is here. 
135   Source: Unbiased.co.uk. Link to the article is here. 

110 

 
   
 
  
                                                 
Advice scenario 

Typical 
cost* 

Advice  on  transferring  a  £100,000  pension  with  guaranteed 
annuity rates 

£2,000 

Specialist advice on defined benefit transfer 

£1,500 

 Converting  a  £30,000  pension  fund  into  a   lump  sum  and 
annuity 

£825 

 Converting  a  £100,000  pension  fund  into  a   lump  sum  and 
annuity 

£1,750 

 At  retirement  advice  on  £100,000  pension   pot  (client 
requires full advice) 

£2,000 

 At retirement advice on £100,000 pension  pot (client knows 
what they wish to do) 

£1,000 

At 
retirement        

 At  retirement  advice  on  £200,000  pension   pot  (client 
requires full advice) 

£2,500 

 At retirement advice on £200,000 pension  pot (client knows 
what they wish to do) 

£1,100 

 Set up of a drawdown scheme on a  £300,000 pension pot 

£3,500 

 At retirement advice where the client has a  £200,000 SIPP, 
investments  and  a 
some  DB 
incorporating 
£250,000 
estate  planning 

 of 
 property, 

 investment 

 £100,000 

income, 

£5,000  

Source 3 – (IE) Charges on unit-linked funds?136 

The charges that may apply to unit linked funds are: 

  Allocation rate - the percentage of investment that is used to buy units in a fund. A 
98%  allocation  rate  means  that  for  every  €100  you  invest,  the  investment  company 
invests €98 and takes €2 as a charge. 

  Bid/offer spread - the difference between the price to buy and sell units in a fund. If 
the difference is 5%, it means that €5 out of every €100 used to buy units is taken off 
as a charge. As a result, the value of a €100 investment would fall to €95. 

  Monthly  policy  fee  -  this  is  usually  a  fixed  amount  charged  each  month,  typically 
ranging  from  €3  to  €6.  It  is  taken  either  directly  from  the  investment  or  from  the 
value of a fund. 

136   Source: Consumer Help IE. Link to the article is here. 

111 

 
   
 
  
 
                                                 
  Product  management  fee  -  this  is  sometimes  charged  for  ongoing  advice  from  a 
financial advisor or stockbroker. It may be 1% to 2% of the value of a fund each year. 
  Yearly fund management fee - this is a set percentage of the value of an investment 
fund that is taken by the provider each year to pay for managing the fund and other 
general costs. It typically ranges from 0.75% to 1.5% of the value of a fund. 

  Early encashment charge - this is a fee that may be charged for any money withdrawn 
in the first few years. Typically, it varies from 1% to 5%. This charge is highest for 
withdrawals in the first year and reduces every year after that. 
Source 4 – (UK) FCA survey of firms providing financial advice?137 

The  charging  structures  were  very  similar  across  the  three  advice  areas.  The  most 
commonly  used  type  of  charge  was  a  percentage  fee  (i.e.  a  percentage  of  investable 
assets advised on). For investable assets of up to £50,000, the majority of firms charged 
between 1% and 4.5% for initial advice on investments, with a median initial percentage 
fee  of  3%;  the  percentage  fee  was  lower  for  higher  levels  of  investable  assets.  The 
median percentage fee for ongoing advice on investments was 0.5% for investable assets 
of £50,000 or less. 

Source 5 – (EU) ANALYZING INVESTMENT MANAGEMENT FEES138 

Total Expense Ratio by Fund Type and Distribution Channel 

For the five fund types, the asset-weighted average total expense ratios are: 

  Equity ~ 1.75% Absolute Return ~ 1.59% 
  Bond ~ 1.17% Alternative/Others ~ 1.54% 
  Balanced/Asset Allocation ~ 1.42% 

Across the four major European distribution channels analysed in an EFAMA survey 
of October 2011, asset-weighted average total expense ratios were nearly the same: 

IFA/Advisor ~ 1.50% 

  Bank ~ 1.50% 
 
  Platform ~ 1.54% 
 
Insurance ~ 1.53% 

Source 5 – (UK) UK retail investing fees stay above 2.5% annually139 

The cost of retail investing in Britain remains above 2.5 per cent annually, down just 10 
per cent in the three years since the UK imposed sweeping changes to the way financial 
advisers serve consumers, according to data supplied to the Financial Times. 

Source 6 – (EU) European Fund Expenses Are Decreasing in Percentage140 

This study of European investment funds found that the asset-weighted ongoing charge 
for  the  full  European  fund  universe  is  1.00%  in  2016,  down  from  1.09%  in  the  2013 

137   Source: FCA UK. Link to the survey report is here. 
138   Source: EFAMA October 2011. Link to the paper is here. 
139   Source: FT. Link to the article is here. 
140   Source: Morningstar study 2016. Link to the report is here. 

112 

 
   
 
                                                 
study named "Expenses in Nordic Investment Funds in a European Context." The decline 
is,  among  other  factors,  a  result  of  the  increasing  penetration  of  clean  share  classes 
(without  commission  fee)  but  also  investors'  general  increased  preference  for  less 
expensive funds. 

Source 7 – (UK) Example - M&G Absolute Return Bond Fund141   

Ongoing charge 0.86% of assets under management. 

Retail  investors  may  switch  between  other  sub-funds  of  M&G  Investment  Funds.  An 
entry charge may apply. 

141   Source: Key information document on one of the funds by M&G for financial advisors. Link is here. 

113 

 
   
 
 
 
 
 
                                                 
ANNEX  10  -  LIST  OF  OTHER  FEATURES  THAT  COULD  BE  PART  OF  A  REGULATORY 

STATUTE ESTABLISHING A PEPP   

Other important features include rules on costs and fees, the possibility for a guarantee on 
biometric risk, possible requirements for a depository or investor compensation system.  

Rules on costs and fees  

In  view  of  the  impact  of  costs  and  fees  on  returns,  three  options  can  be  envisaged  for 
general costs and charges, excluding possible switching charges that are separately dealt 
with in section 4.3.1.1: 

Policy option 

Description 

1. Baseline (existing EU 
sectoral legislation or if 
absent national legislation) 

2. Cap on costs and 
charges 

3. Transparency on costs 
and charges 

No requirements on fees and costs. 

Establish a cap on costs and charges. 

Establish  transparency-requirements  for  costs  and  charges 
inspired by sectoral legislation (e.g. PRIIPS, IDD or IORP 
II). 

In  option  1  providers  could  charge  fees  and  costs  at  their  discretion.  This  could 
potentially be attractive from the perspective of developing the supply side for the PEPP 
product.  Providers could  reduce  their  cost  base by  charging  costs  and charges  to  PEPP 
savers. However, no policy action would be disadvantageous from a consumer protection 
perspective:  risks  to  overcharging  could  increase  and,  as  a  consequence,  PEPP  saver 
returns  on  the  product  could  be  seriously  impacted.    In  particular  consumers' 
organisations  during  the  public  consultation  highlighted  that  costs  and  chargers  of 
existing  personal  pension  products  are  often  high,  opaque  and  not  fully  disclosed, 
undermining  the  attractiveness  of  these  products  and  limiting  returns  and  outcomes  at 
retirement.  EIOPA  technical  advice  recommended  taking  existing  transparency  based 
legislation  as  a  starting  point,  with  reference  to  PRIIPs  and  while  acknowledging  that 
capping costs is not the first-best option, for this product it could be further explored.142 

A possible solution to the disadvantages of option 1 could be option 2, i.e. a cap on costs 
and charges based on objective parameters. While the consumer protection is increased 
and  providers  would  benefit  from  upfront  clarity  on  maximum  costs  and  charges  that 
could apply, assessing the appropriate level of a pan-European cap applicable to different 
types  of  providers  would  be  excessively  difficult  in  light  of  the  varying  economic 
contexts in the Member States. An excessively strict cap would limit the take-up of the 
PEPP and an excessively lenient cap might not achieve its consumer protection objective. 

Option  3  would  allow  establishing  a  level-playing  field  between  providers  whilst 
ensuring  consumer  protection.  Comparative  information  would  be  available  between 

142   EIOPA technical advice, p. 35, 53.   

114 

 
   
 
     
                                                 
different  products  and  incentivise  competitive  pricing  with  a  risk  that  providers  could 
still apply high fees in the short term.  

Consequently, option 3 is recommended. 

Guarantee against the biometric risk 

Such  guarantee  could  be  considered  as  an  essential  feature  to  ensure  consumer 
protection.  However  it  would  entail  consequences  in  terms  of  potential  providers  and 
limit  the  market  to  insurers,  disadvantaging  asset  managers  and  investment  firms. 
Alternatively, the PEPP framework  could provide a Member State option;  or  not  cover 
the biometric risk at all. 

Policy option 

Description 

1.  Baseline  (existing  EU 
sectoral  legislation  or  if 
absent national legislation) 

No  requirements  for  guarantee  against  the  biometric  risk. 
Member States would determine the appropriate guarantee, 
if any.  

2. Mandatory guarantee on 
biometric risk 

Obligation  for  all  PEPP  providers  to  provide  a  guarantee 
against the biometric risk. 

Option  1 leaves it up to the providers to offer a guarantee against  the biometric risk in 
their  product  offer.  To  addressing  concerns  expressed  by  some  Member  States  with 
regard to minimum consumer protection, Member States could decide at national level to 
require such a guarantee for death, disability or both and could allow the PEPP to obtain 
favourable tax treatment. 

Option  2  would  introduce  a  mandatory  guarantee  for  all  PEPP  providers.  From  a 
consumer  protection  perspective,  money  allocated  to  a  retirement  objective  is 
safeguarded  against  changes  in  investment  value.  A  disadvantage  would  be  that  the 
provision  of  PEPPs  could  be  unattractive  for  those  providers,  others  than  insurers  and 
pension funds that cannot ensure a mandatory guarantee against biometric risk. 

Option  1  is recommended  given the  low  level  of  demand  from  consumer  organisations 
for such guarantee, the establishment of a level playing field between different types of 
providers and the flexibility for providers to take into account the national criteria for tax 
incentives if and when such guarantee is offered.  

Depositary, custodian functions and investor protection 

In order to further protect investors, the PEPP framework could require an independent 
depositary function (based on UCITS143 or IORP II) to avoid fraud or custody risk in the 
management (or valuation)  of assets, as  well  as to ensure that assets of scheme are not 
lost in case of bankruptcy of the PEPP provider.  

This function would come in addition to the risk mitigation contained in the investment 
options, which imply an obligation on the provider to protect the PEPP saver's capital.  

143 The statute could avoid duplication with other depositary obligations when assets are already covered 

by the UCITS obligation. 

115 

 
   
 
 
                                                 
Other elements of prudential supervision 

This  section  applies  to  the  elements  of  prudential  supervision  which  are  not  treated 
above, such as the solvency regime, supervisory powers, etc. 

The  PEPP  providers  would  be  subject  to  a  prudential  supervision  regime  with  the 
following options:  

Policy option 

1. Baseline (existing EU 
sectoral legislation or if 
absent national legislation) 

Description 
All PEPP providers including those which are subject to a 
national but no EU prudential  regime could offer  a PEPP, 
subject to their respective prudential regime; 

2. PEPP providers subject 
to their respective current 
EU regimes 

Only providers already subject to an EU prudential regime  
would  be  able  to  offer  a  PEPP,  subject  to  their  respective 
prudential regime; 

3. PEPP providers subject 
to a new EU regime 

A specific prudential regime would be created and apply to 
all PEPP providers. 

Under  the  baseline  scenario,  there  are  some  risks  of  regulatory  arbitrage  as  regards 
providers  not  subject  to  harmonised  prudential  regimes,  undermining  the  level  playing 
field. In addition, the cross-border development of PEPPs might be hindered due to the 
patchwork of applicable national and EU regimes for PEPP providers.  

In  comparison,  Option  2  would  create  a  level  playing  field  and  prevent  regulatory 
arbitrage  as  all  providers  would  be  subject  to  at  least  one  EU  Rules.  Despite  the 
coexistence of distinct EU rules applicable to distinct providers, this option would limit 
costs  whilst  offering  PEPP  savers  the  protection  conferred  by  the  sectoral  prudential 
regimes. This option is hence recommended. 

Under  Option  3,  all  providers  would  be  subject  to  the  same  EU  prudential  regime. 
However,  this  would  create  potential  incompatibilities  with  some  providers  e.g  asset 
managers.  A  standalone  prudential  regime  risks  deterring  some  providers  to  enter  the 
market and undermines the take-up of the PEPP. 

116