Pan-European personal pension product

KEY POINTS

The PEPP regulation lays down uniform rules on the core PEPP features, in particular on the following key points.

PEPP providers²

PEPPs can be offered by a wide range of financial institutions, including insurance undertakings, asset managers, banks, certain investment firms and certain occupational pension funds.

PEPP contract

The regulation sets out the minimum requirements for the content of the contract agreed between PEPP providers and PEPP savers³.

Registration of PEPPs

• Providers that want to offer a PEPP need to follow a registration process. The European Insurance and Occupational Pensions Authority registers new PEPPs in a central register, on the basis of a decision taken by national competent authorities. Once registered, the product can be provided and distributed throughout the EU.
• The regulation describes in detail the PEPP registration procedures, the circumstances for deregistering a PEPP and the powers of the competent authorities of the home and host EU Member States.

EU passport

PEPP providers and distributors benefit from an EU passport, which allows them to sell PEPPs in different Member States. The passport allows them to access the entire EU market with a single product registration granted on the basis of a single set of rules.

Portability

• When proposing a PEPP, providers or distributors must provide prospective PEPP savers with information on the portability service⁴ and on which sub-accounts⁵ are immediately available.
• If PEPP savers change their residence to another Member State, they can continue to contribute to the same PEPP either by opening a PEPP sub-account with the same PEPP provider in their new country of residence (where such an option is available with their PEPP provider) or by continuing to contribute to their existing PEPP sub-account. In the event that their PEPP provider does not provide for such an option in their new country of residence, PEPP savers have the right to switch PEPP provider immediately and free of charge. PEPP providers must open at least two sub-accounts after a transition period of 3 years.

Switching

PEPP savers can switch PEPP provider after a minimum of 5 years from the conclusion of the PEPP contract and, in the case of subsequent switching, after 5 years from the most recent switch. The PEPP provider may allow PEPP savers to switch PEPP providers more frequently. The fees and charges for the switching service must be limited to the actual administrative costs incurred by the transferring PEPP provider and capped at 0.5 % of the value of the transferred assets.

Investment options

• PEPP providers can provide up to six investment options, including the default investment option – the basic PEPP⁶. All investment options must be designed by PEPP providers on the basis of a guarantee or a risk-mitigation technique that ensures sufficient protection for PEPP savers.
• For the basic PEPP, PEPP providers must protect PEPP savers’ capital either by a guarantee or by risk mitigation techniques consistent with the objective to allow the PEPP savers to recoup the capital. Costs and fees for the basic PEPP must not exceed 1 % of the accumulated capital per year.
• PEPP savers have the right to change investment option regularly in order to adapt their investment strategy. This right is free of charge and can be exercised after a minimum of 5 years from the conclusion of the PEPP contract and, in the case of subsequent changes, after 5 years from the most recent change of investment option. PEPP providers may allow PEPP savers to change their investment option more frequently.

Types of out-payments

• PEPP providers can offer PEPP savers one or several types of out-payments (annuities, a lump sum, regular drawdown payments or a combination of these).
• PEPP savers can choose the form of out-payments for the decumulation phase⁷ at the conclusion of a contract and when opening a new sub-account. The form of out-payments may differ from sub-account to sub-account. If PEPP providers provide different forms of out-payments, PEPP savers can modify the form of out-payments of each sub-account 1 year before the start of the decumulation phase, at the start of the decumulation phase and at the moment of switching.

Distribution of PEPPs

• The regulation sets out the conditions under which PEPP providers and PEPP distributors⁸ may distribute PEPPs.
• The distribution regime of the PEPP follows a sector-by-sector approach. Insurance companies and insurance intermediaries that distribute a PEPP are subject to the insurance distribution directive (Directive (EU) 2016/97), while investment firms and other PEPP providers and distributors will have to apply the rules in the markets in financial instruments directive (Directive 2014/65/EU).

Advice

• PEPP providers and PEPP distributors are required to provide prospective PEPP savers with comprehensive advice before the PEPP contract is signed, in order to enable them to make a fully informed decision and choose the product that best suits their needs. The advice must also cover the choice of investment option and personalised pension benefit projections. Before the signature of the contract, all PEPP providers and distributors must have PEPP savers carry out a test on their retirement-related demands and needs to determine which PEPPs would be suitable for them, if any. This test must also include a specific check to determine whether the PEPP savers need a PEPP offering annuities, in order to ensure adequate protection against longevity risks.
• In addition, for the basic PEPP, PEPP providers must provide PEPP savers with mandatory personalised retirement planning advice at the start of the decumulation phase, with a personal recommendation on the optimal form of out-payments.

Information

• To ensure a high level of transparency, the regulation provides that PEPP savers must receive:
  • key information about the product through a standardised document (i.e. the PEPP key information document);
  • every year, a PEPP benefit statement with key information about the development of their savings.

• To ensure a high degree of consumer protection, PEPP savers will not have any possibility to waive advice before the conclusion of the contract.
• In particular, costs and fees must be fully transparent.
• The European Commission must further specify, through regulatory technical standards, the details of the presentation of the information to be provided in the PEPP key information document and the PEPP benefit statement.

Sustainability factors

• PEPP providers are encouraged to take into account environmental, social and governance (ESG) factors⁹.
• PEPP providers should provide PEPP savers with information, where available, relating to the performance of the PEPP providers’ investments in terms of ESG factors.
• They should also provide PEPP savers with information, in the PEPP benefit statement, on how the investment policy takes into account ESG factors. In line with the prudent person rule, PEPP providers must take into account risks related to, and the potential long-term impact of, investment decisions on ESG factors.

Supervision

Compliance with the PEPP regulation must be supervised by the national competent authorities of the PEPP providers and distributors. However, the European Insurance and Occupational Pensions Authority has product-intervention powers that allow it to take effective, EU-wide measures in the case of a significant PEPP saver protection concern. It can also act in the case of a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the EU’s financial system that is not adequately addressed by national competent authorities.