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Lessons from the Pan-European Personal Pension Product (PEPP)

INTRODUCTION

Europe, like most other continents, is ageing at a rapid pace. In 2060, there will be two people at a working age for every pensioner, in comparison with four people at a working age at the
present time.1 This puts the sustainability of the traditional pension systems across Europe under significant pressure, despite reforms that are currently underway in many European countries.

Only 27 percent of all EU citizens presently have a personal pension product (third pillar).2 There are only a limited number of third pillar pension product providers across Europe and the
majority (83%) of retirement savings are currently built up with insurance companies.3 In Eastern Europe, many employees simply do not have any pension arrangements at all.

The EU therefore felt the need to solve the retirement security problem facing several European nations on a European scale. In this regard, the European Commission (which proposes EU
legislation) of the EU published a proposal in 2017 for an EU regulation (a directly working and applicable EU Law) for Europe for a new individual pension product – the Pan European Pension
Plan, or PEPP. The PEPP sought to introduce a portable individual retirement account that can be rolled out across the European Union (EU) and can also be offered to citizens worldwide.

EIOPA (the EU pensions supervisor) accordingly sketched the contours of the PEPP.5 In early April 2019, the PEPP was adopted by the EU legislature and came into force in 2022. This was a
remarkable achievement, especially considering that it concerns European pension legislation, a controversial subject in the EU.

By 2023 several PEPP providers are already active in the EU and the expectation is that the number of such providers and distributors will only increase.