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

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.

How to fix perceived limitations

EIOPA is convinced that the PEPP’s core characteristics – simplicity, cost-efficiency, transparency mobility and flexibility – should remain the foundation for an updated version. That said, improvements are possible to make PEPP more attractive to providers and savers alike.

To tackle supply-side issues, the potential market for PEPP must be expanded significantly. The below measures are proposals to achieving this:

• Combine occupational and personal PEPP into a single product. Allowing tax-efficient employer contributions with personal contributions within one PEPP would provide the necessary scale to attract more providers.
• Focus on value-for-money considerations in PEPP instead of a hard ceiling on costs.
• Create PEPP labels for national products that adhere to a set of EU-wide common rules.
• Reduce the administrative burden by making national sub-accounts voluntary, thereby making the cross-border feature of PEPP optional.
• Allow the transfers of funds from other personal pension products into the PEPP.

Possible demand-side fixes should aim at encouraging pension participation in general. Leveraging all three pillars of pensions (state, occupational and personal) is necessary to secure citizens’ financial freedom in retirement and changing the status quo calls for bold proposals:

• Introduce auto-enrolment for a personal pension scheme like the PEPP at the EU level. Automatically opening a scheme for every EU citizen reaching the age of 18 or entering the workforce would be an innovative step. Such schemes should allow both regular and intermittent contributions to reflect diverse career paths.
• Develop pension tracking systems. Providing savers with transparent and accessible information on their combined pension entitlements in one single place supports long-term savings and adequate pension planning.

Beyond these measures, national and Union-wide initiatives are indispensable to making a revised PEPP a success. Member States should:

• Grant PEPP the same favorable tax treatment that national personal pension products enjoy. Additionally, EU-wide tax harmonization for PEPP would facilitate cross-border sales and help providers reach economies of scale and keep costs low.
• Implement pension dashboards to improve transparency regarding the adequacy and sustainability of national pension systems. Measuring pension gaps is an essential first step to closing them.

Read the Staff Paper

EIOPA strongly believes that European citizens, PEPP providers and Member States stand to benefit greatly from a revised PEPP, from having a low-cost, long-term savings alternative that can deepen the EU’s capital markets and ease the pressure on state finances.

EIOPA looks forward to engaging in discussions with stakeholders on the above proposals and to developing specific policy proposals ahead of the scheduled evaluation of the PEPP Regulation in 2027.