11 September 2024

EIOPA proposes a broad reform of the PEPP to tackle Europe’s pension gap and support the digital and green transitions

EIOPA published today a Staff Paper on the future of the Pan-European Pension Product (PEPP). The paper sets out the reasons behind the limited uptake of the PEPP and suggests improvements to its design to overcome supply-side, demand-side and structural barriers hindering its broader adoption.

The European Insurance and Occupational Pensions Authority (EIOPA) published today a Staff Paper on the future of the Pan-European Pension Product (PEPP). The paper sets out the reasons behind the limited uptake of the PEPP and suggests improvements to its design to overcome supply-side, demand-side and structural barriers hindering its broader adoption.

EU citizens collectively hold around €34 trillion in savings, yet around a third of these funds are held in bank deposits. At the same time, aging populations across the EU are increasing the strain on state pensions. With ever fewer workers supporting a growing number of retirees, Member States face the major challenge of continuing to provide adequate retirement income while maintaining robust public finances. 

The Pan-European Pension Product (PEPP), launched in 2022, was designed to offer a simple, transparent, cost-efficient and mobile retirement savings option with which European citizens could supplement their state pensions. A well-functioning PEPP market can help reduce Europe’s pension gaps, provide citizens with adequate and sustainable retirement income and supply vital capital to finance the long-term growth of the EU’s real economy, as well as the green and digital transitions.

Still, due to various supply-side, demand-related and structural reasons, its uptake has been limited, warranting re-assessment. In the Paper published today, EIOPA takes stock of why PEPP has not lived up to its potential and proposes enhancements that could breathe new life into supplementary pensions across the EU.

Supply-side difficulties

Lauching any new product involves upfront investment, and the PEPP’s costs and fees cap of 1% of the accumulated capital per year mean that the product requires scale to become a viable commercial proposition. While EIOPA does not consider that a 1% cost cap is too low per se, the need for scale may be setting the bar fairly high for smaller product providers. Potential providers may also be concerned about “cannibalizing” their existing product proposition with the launch of a PEPP.

Demand factors and other obstacles

Overall low awareness and low participation in supplementary pension schemes in Europe along with the current cost-of-living crisis have likely dampened consumers’ demand for the PEPP. Even as inflation recedes and the economic environment improves, it remains uncertain whether consumers would show significantly more interest for PEPP in its current form.

Delays in PEPP's implementation by some Member States and the lack of a uniform tax treatment at the national level have also limited adoption...

 more at EIOPA

Staff Paper on the future of the Pan-European Pension Product (PEPP)

© EIOPA