The Pan-European Personal Pension (PEPP) was launched by the EU in 2019 before becoming available to the public in March 2022, with hopes that the product would transform the way European citizens save for their retirement.
These voluntary, portable pension products were designed to let people save for retirement across different EU countries, offering simple, low-cost contributions and flexibility.
But despite the EU’s best intentions, the PEPP has been extremely slow to get off the ground, with people across Europe shunning the product for more traditional savings options.
Several years since its introduction, we look at what has gone wrong, what needs to change, and whether PEPPs could actually be an option for you.
Low Fees and High Expectations
PEPPs were introduced to make it easier for mobile workers to plan for retirement across EU member states. With the ‘basic’ plan’s fees capped at 1%, it is a low cost option offering better value and flexibility than many other products.
Yet these low fees have been blamed as one of the reasons the product has been slow to take off, with providers viewing the cap as unprofitable, and therefore offering fewer PEPP products.
Better Finance, the European federation of investors, says that the financial industry has failed to embrace PEPPs, with providers reluctant to prioritise a low-cost product over more profitable options.
However, a lack of consumer awareness and inconsistency around tax incentives are also largely to blame for the slow uptake of Pan-European Personal Pensions.
Inconsistent Tax Incentives
Tax relief on pension contributions is among the most significant incentives for those who invest in a personal pension.
In Ireland, PEPPs enjoy the same tax advantages as occupational pensions or PRSAs, however this varies among EU member states. In some countries, only national products benefit from tax incentives, defeating the purpose of a ‘pan-European’ product.
The main benefit for Irish citizens is that unlike PRSAs, contributions to a PEPP can continue even if you move to another EU country.
Benefits of PEPPs in Ireland
Public Awareness
Among the issues affecting the slow uptake of PEPPs is a lack of public awareness. PEPPs remain relatively unknown to most people, even those wishing to save for retirement.
Last year, the European Insurance and Occupational Pensions Authority (EIOPA) put forward a range of proposals relating to PEPPs which would lower costs, build public trust and ensure clear oversight.
The authority recommended that PEPPs be renamed ‘EuroPensions’ to increase public awareness and increase recognisability.
They also proposed that the current 1% cost cap be changed to a system that assesses and weighs costs which are based on benefits and returns.
The Future of PEPPs / EuroPension
There are two options for the future of PEPPs. One is to revise the current product, and the other is to wind it down.
For PEPPs to survive, the same tax benefits must apply to PEPPs as those enjoyed by national pensions across the EU, which would increase uptake.
Better Finance also recommends that the pension products be more user friendly and easier to understand, inspired by the success of Individual Retirement Accounts (IRAs) in the US, while recognising the EU’s unique environment.
Lastly, employers should be incentivised and encouraged to offer PEPPs with automatic enrolment.
So are PEPPs worth it?
For Irish citizens, there are few advantages of PEPPs over traditional options such as PRSAs, as both benefit from the same tax advantages.
The main thing that distinguishes PEPPs from other pension products is that they can be easily transferred between EU member states. For this reason, PEPPs are best suited to those working or planning to work in multiple European Union countries, as they can continue to make contributions and maintain the same level of growth in their fund.
But for those living and working only in Ireland, PEPPs do not offer many practical advantages, and most people will opt to invest in a PRSA which offers the same advantages and is better understood by providers and advisors.
