The Pan-European Personal Pension Product and its Regulatory Landscape

Josef Bergt
2023

Introduction

The introduction of the Pan-European Personal Pension Product (PEPP), a groundbreaking financial instrument designed to augment private retirement savings, has engendered a paradigm shift in the European pension landscape. Available to European citizens irrespective of age or occupation, PEPPs are offered by a diverse array of financial institutions, including insurance companies, credit institutions, securities firms, investment management companies, and alternative investment fund managers based within the European Union. This article aims to dissect the intricate regulatory framework surrounding PEPPs, elucidate the product's multifarious variants, and explore the implications for both providers and consumers.

Regulatory Oversight and Compliance

Since March 22, 2022, companies have been authorized to offer PEPPs, subject to stringent regulatory oversight. Institutions intending to offer or broker PEPPs are mandated to register in a centralized database maintained by the European Insurance and Occupational Pensions Authority (EIOPA). Concurrently, the EU authority ensures that only registered financial products are marketed under the PEPP nomenclature. On a national level, national supervisory authorities are responsible for scrutinizing each PEPP offering to ensure its compliance with legislative prerequisites.

Product Variability and Risk Profiles

PEPPs are uniquely designed to offer up to six different variants, each characterized by distinct risk profiles. The so-called Basic PEPP comes with capped costs and offers the consumer the benefit of either a guaranteed return upon retirement or a risk-mitigation technique that must meet specific criteria to protect the invested capital. Mandatory, standardized information sheets provide consumers with essential details about each PEPP variant, thereby facilitating comparative analysis.

Flexibility and Portability

One of the salient features of PEPP is its flexibility. While early termination of the product is generally discouraged, consumers have the option to switch providers or investment options at capped costs of a maximum of 0.5% of the contributions every five years. Furthermore, the product is designed with portability in mind; if a PEPP account holder relocates within the EU, a sub-account conforming to the national regulations of the new residence country is created.

Payout Options at Retirement

Upon reaching retirement age, PEPP account holders have multiple disbursement options. They can opt for regular pension payments, a lump-sum withdrawal, or staggered withdrawals. A combination of these payout methods is also permissible.

Source: BaFin on PEPP - Pan-European Private Pension Product

Executive Summary:

• Regulatory oversight by EIOPA and national agencies ensures compliance with legislative requirements.
• PEPP offers up to six different variants with distinct risk profiles, including a Basic PEPP with capped costs and guaranteed returns.
• Flexibility in provider switching and investment options, coupled with portability across EU countries.
• Multiple payout options available at retirement, including regular pension payments, lump-sum withdrawals, and staggered withdrawals.