COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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

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   EUROPEAN COMMISSION  Brussels, 29.6.2017  SWD(2017) 244 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE 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) 243 final}  
 
 
Impact assessment on Commission proposal for a Regulation on a pan-European personal pension product 

Executive Summary Sheet 

Why? What is the problem being addressed?  

A. Need for action 

Personal pensions are defined as "retirement financial products contracted on a voluntary basis with a non-state 
entity. They have an explicit retirement objective, providing for capital accumulation until retirement and serve as 
a  complementary  income  on  retirement".  They  are  complementary  to  state-based  public  pensions  and 
occupational pensions.  

In its Action Plan on Building a Capital Markets Union (CMU)1, 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. Many respondents in the 
public  consultation  view  the  supply  of  personal  pension  products  currently  available  and  sold  in  the  EU  as 
inadequate. This is supported by the 2015 European Commission scoreboard on retail investor markets, which 
shows that personal pension products are among the three products with the lowest satisfaction rating from retail 
investors. Finally, cross-border selling and portability of existing personal pensions are very limited.  

Insufficient  replacement  incomes  in  retirement  and  lack  of  investment  on  EU  capital  markets  could  both  be 
mitigated by greater development of personal pension products at EU level. 

What is this initiative expected to achieve?  

The general objective is to create a single market for personal pensions and contribute to the completion of the 
CMU. This main objective encompasses three specific objectives:  
1)  Increase  investment  in  the  EU  and  contribute  to  completing  the  CMU  –  Over  a  long  term  period,  the 
creation of larger pools of pension savings channelling additional financing to productive long-term investments.   
2)  Enhance  features  of  personal  pension  products  –  allowing  for  the  creation  of  simple,  transparent  pan-
European personal pension products. 
3)  Enhance  the  cross-border  provision  and  portability  of  personal  pension  products  –  allowing  for 
providers  to  increase  economies  of  scale  and  improve  efficiency  and  innovation,  as  well  as  improve 
opportunities for retail investors to take their personal pension with them when moving to another Member State.  

What is the value added of action at the EU level?  

The  uncoordinated  efforts  of  Member  States  cannot  remedy  the  current  patchwork  of  national  regulations  of 
personal pension products. EU-level action would substantially add value and address market fragmentation and 
help  providers  operate  cross-border  as  it  would  allow  them  to  centralise  certain  functions  at  an  EU-level.  For 
individuals,  minimum  product  requirements  laid  down  in  EU  rules  would  create  transparency  and  simplicity  as 
well as safety for retail investors, benefiting employed and self-employed workers, mobile or not. Only EU action 
can enhance portability and address the needs of the increasing number of mobile workers. 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  

B. Solutions 

1  COM(2015) 468 final. 

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The impact assessment analyses the following three options: 
1. Baseline scenario, whereby no EU policy action would be taken.  
2. A Pan-European Personal Pension Product (PEPP), whereby a statute for a EU PEPP would be established, 
based on a set of common and flexible features through a voluntary complementary regime.  
3. Harmonisation, whereby national personal pension regimes would be harmonised. 
The  preferred  option  is  option  2.  Indeed,  under  this  option,  the  increased  standardisation  of  the  key  product 
features  would  create  opportunities  for providers  to  build  economies  of  scale, whilst  some  flexibility  in  the  key 
features would be preserved so that providers can benefit as much as possible from national tax incentives. This  
would,  over  a  longer  period  of  a  decade  or  more  and  under  the  assumption  that  the  PEPP  would  receive  the 
same  tax  incentives  as  national  products,  result  in  increased  take-up  of  personal  pensions,  of  investments  by 
providers  in  the  CMU  context,  and  in  facilitating  cross-border  development.  Consumers  would  benefit  from 
greater choice and adequate protection when saving for retirement. Such a statute would be cost-effective and 
politically feasible as it does not require existing personal products to adapt to a new regulatory environment and 
does not affect existing regimes.  

Who supports which option?  

Consumers and consumer associations are supportive to the creation of a simple, transparent personal pension 
product (option 2). Providers (insurers, pension funds, asset managers) demonstrated most support for option 2 
in  view  of  its  potential  to  address  market  shortcomings.  The  technical  advice  of  the  European  Insurance  and 
Occupational  Pensions  Authority  (EIOPA)  also  supported  the  creation  of  a  PEPP.  Providers  consider 
harmonisation  of  national  regimes  as  least  effective.  In  a  public  consultation,  Member  States  also  strongly 
opposed harmonisation of national regimes (option 3).  

What are the benefits of the preferred option (if any, otherwise main ones)?  

C. Impacts of the preferred option 

Under  the  preferred  option,  providers  (including  insurers,  pension  funds,  investment  firms,  banks  and  asset 
managers),  authorised  under  EU  sectorial  regimes,  would  be  able  to  design  Pan-European  Personal  Pension 
Products  (PEPPs)  based  on  a  set  of  common  features.  For  retail  investors,  the  PEPP  would  provide  an 
additional choice for complementary retirement savings. Mobile workers would benefit from improved portability. 
A study estimated the personal pension product market is expected to develop from the current level - estimated 
at  around  EUR0.7  trillion  -  to  either  EUR1.4  trillion  (which  corresponds  to  the  baseline  scenario)  or  EUR2.1 
trillion (with the extra amount coming from the PEPP, on the hypothesis of tax advantages for the PEPP). The 
PEPP would then account for around a half of the potential increase of the total market, the other half coming 
from growth dynamics involving the currently sold national products. The increased take-up would, over a longer 
term, contribute to realising the CMU objective. 

This initiative would have positive social impact, as an increase of take-up of personal pensions would enhance 
the  number  of  people  with  adequate  income  in  retirement.  In  particular,  it  would  provide  self-employed  and 
mobile workers with a new means to save for retirement.  

What are the costs of the preferred option (if any, otherwise main ones)?  

As the preferred option is a complementary regime in parallel to national rules, no negative economic, social or 
environmental impacts are expected.  

How will businesses, SMEs and micro-enterprises be affected?  

The  initiative  is  expected  to  expand  the  range  of  providers:  from  predominantly  insurers  to  include  asset 
managers and specialised pension funds. Since providers such as asset managers are often SMEs they could 
be positively impacted, because new business opportunities would be created.  

Furthermore,  this  initiative  could  have  positive  effects  on  SMEs  by  tapping  additional  private  savings  and 
channelling  funds  towards  the  economy  and  creating  additional  sources  of  finance  that  benefit  SMEs.  This 
initiative would also help self-employed persons to increase their options to save for retirement.  

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Will there be significant impacts on national budgets and administrations?  

The  PEPP  would  be  a  new  product  category  provided  by  a  wide  range  of  providers  which  are  subject  to 
regulatory oversight by national competent authorities under existing regulatory frameworks. The monitoring of 
cross-border distribution of the PEPP could create some additional tasks for national competent authorities. The 
authorisation  of  individual  PEPPs  would  be  attributed  to  the  European  Insurance  and  Occupational  Pensions 
Authority (EIOPA), requiring additional resources. Under the current co-financing arrangements, the 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. Furthermore, the decision whether to grant favourable tax incentives to 
the PEPP remains at national level and any impact would depend on the take-up at national level.  

Will there be other significant impacts?  
There are no other significant impacts expected.  

When will the policy be reviewed?  

D. Follow up 

The  proposed  statute  should  include  a  review  after  three  years  of  application.  The  review  should  assess  the 
take-up of personal pension products, the  contribution to the CMU, the increase in cross-border  provision  and 
portability for retail investors.  

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