Individual pension provision must be developed. Fecif members perceive this need with their clients across Europe, whether is it to offer more choice and competition in markets with a developed long-term savings offering or simply to give access to solutions in less developed ones. Unlocking this could have a tremendous effect on long-term savings and investments across Europe.
The PEPP initiative was launched by the European Commission mid-2017. The European Parliament published a very promising working document earlier this year. Now, the European Council (representing individual countries) is looking at the project.
We remain absolutely convinced that Pepp has great potential, but three elements are needed to make it work:
Tax treatment is a priority and must be addressed in innovative ways
Tax treatment is critical to the success of a savings product. The main issue is how to give Pepp products the same tax treatment as favourable local pension products, without overstepping national tax rules.
Current proposals either require 28 national compartments in every Pepp – not likely to be attractive to providers or to bring new benefits to individual investors – or a very hypothetical 29th tax regime that would sit next to existing countries. Both these approaches are impractical and doomed to fail.
A pragmatic solution could be for PEPP to offer only two compartments, which would dovetail with the majority of existing pension tax regimes:
One ‘EET’ compartment where sums invested receive tax relief, build up tax-free and are taxed at exit, in line with many 2nd and 3rd Pillar pension funds in the majority of Member States;
One ‘TEE’ compartment where sums are invested after tax, build up tax-free and are tax-free on exit, which is the case for a minority of Member States and for individual savings products often also used for retirement.
This way, national authorities could more easily align the tax treatment of PEPP with their own national comparable Personal Pension Products, without needing to change local tax rules or to create compartments for each and every country. We believe it is important for PEPP to test some innovative, consumer-centric approach to avoid getting bogged down and adding extra layers of complexity to existing solutions.
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