PEPPs - the dawn of a new era for pensions

In August 2019, the Pan-European Personal Pension Product (PEPP) Regulation came into force, laying the foundation of a new EU-wide standard for personal pensions to work alongside national pension schemes. The first PEPPs are expected to be launched in March 2022.

Acknowledging the need to modernise a sector that has so far lagged well behind the rest of financial services, the PEPP standardises certain core personal pension product features, including:

• Robust consumer protection rules;
• Detailed investment criteria, including upon how sustainable underlying investments are;
• A limit on fees at 1% per year unless the product needs to contain a guarantee element;
• Transparency requirements, including reporting of the ESG standards;
• Switching rights that enable portability when a saver moves to another EU member state.

What is a PEPP?

The PEPP is a voluntary scheme that will sit alongside national pension arrangements and offer a new pan-EU option for retirement savings.

It offers consumers an alternative way to save for retirement but in a highly standardised way that enables more informed decisions by pension investors.

Why are PEPPs better?

(i) Greater comparability  

To make it easier for savers to decide which PEPP is best for them, providers must publish two mandatory consumer information documents: the PEPP Key Information Document and the PEPP Benefit Statement. The aim of these documents is to provide consumers with all of the relevant information allowing for easier decision-making before entering into a binding contract and then, later on, for easier monitoring of their PEPP’s performance.

(ii) Cost efficiency 

Cost efficiency is one of the major goals for the PEPP. The basic PEPP is limited to an annual cost of 1% of the PEPP saver’s accumulated capital at the end of each year.

According to EIOPA, the “Basic PEPP” has been specifically regulated to offer a relatively high level of capital protection. However, certain legacy products such as fixed annuity PEPPs may still require paying additional fees to Insurers for guarantees. These additional fees are excluded from the cost cap but due to their size must be expressly disclosed.

(iii) Digital Access 

With the banking, investment and insurance worlds moving further towards digitalisation, online access is seen as one of the most important opportunities for consumers’ to engage with their PEPP to better plan how to achieve their retirement goals.

The use of digital means also eliminates many costs normally associated with legacy distribution networks.

(iv) Transparency for consumers 

The PEPP consumer information documents introduce a 'summary risk indicator' in the PEPP KID, which identifies the riskiness of the different PEPP investment options. They also include comparative information to help consumers understand the relative risk to the expected future PEPP retirement benefits, as projections of future retirement income are key for consumers to assess whether the product meets their individual retirement objectives.

Stand by for a new breed of pension company

The great news for savers is that the PEPP rules have created a highly fertile environment for product innovation. The encouragement of digitalisation has spurred the arrival of dynamic new companies that use advanced technology to meet the goals of cost, convenience, transparency and, though not specifically articulated in the regulations, performance. 

At TontineTrust, we are rising vigorously to the challenge. Indeed, with our brand new digital MyTontine pension, we like to think of ourselves as the world’s first “RetireTech”. And that’s not something we would have been able to achieve without some very welcome forward thinking by the EU with its creation of the PEPP.

Tontine Trust’s founder and CEO Dean McClelland will be bringing his perspectives on the introduction of PEPPs at the on-line Irish Pensions Awareness Week. So if you want to know more about the exciting times that lie ahead for Europe’s pension savers, you can register here for his session, which is taking place at 16:30 on 21 September.