Funded Pension Provision with PEPP

Europe’s pension systems are under growing pressure in the face of demographic change. According to forecasts by the European Commission, the average statutory pension level in the EU could fall from 43.8 per cent of gross wages in 2022 to just 35.5 per cent in 2070. The Commission therefore intends – as does the German government – to take countermeasures and strengthen funded pension provision. One element of these efforts is the reform of the legal framework governing the so far largely unsuccessful pan-European personal pension products (PEPPs). CEP financial markets expert Philipp Eckhardt welcomes the direction of the reform proposals but sees room for improvement.

Eckhardt views the partial move away from traditional guaranteed products, the greater focus on return-oriented investment forms and life-cycle strategies, and the planned removal of fixed cost caps in the PEPP reform as particularly positive. “These changes could open up opportunities for higher returns in the long term and make private pension provision more attractive. They lay the foundations for funded private pension schemes to make a greater contribution to old-age provision in the future than they do today,” Eckhardt is convinced.

However, Eckhardt takes a critical view of certain competition-distorting tendencies in the proposals. For instance, the European Commission is attempting, through various regulatory levers, to favour certain pension products over others. Examples of this include differing levels of advisory requirements for standard and non-standard products, as well as the proposed restrictions on specific remuneration models. “The legislator should refrain from such distorting regulations. Instead, it should, first and foremost, empower citizens to make independent decisions regarding private pension provision. Regulations that are purely paternalistic in nature must be avoided,” demands Eckhardt.

The cep therefore advocates uniform advisory standards and the coexistence, on an equal footing, of commission-based and fee-based advice. It is crucial that citizens are able to decide for themselves which pension products suit their individual needs.

The study was commissioned by the Friedrich Naumann Foundation for Europe.