The Pan-European Personal Pension Product (PEPP) is a long-term private pension product. What makes this product special is the fact that it is set to become available to all Europeans, regardless of age or occupation. Insurance undertakings, credit institutions, investment firms, investment and management companies, and EU alternative investment fund managers are some of the providers that will be authorised to offer this product.

What makes the PEPP attractive

So why is a new, EU-wide pension product necessary? In the EU, public pension systems provide for a significant portion of retirement provisions – and the amounts involved vary from one country to another. Many people are choosing to save up for old age with an additional private pension product. However, things can be complicated if these individuals plan on moving to another EU country. The situation is different with PEPP products, though, as savers can easily take their pension entitlements with them and continue saving with the same product in another EU country. This makes the PEPP attractive, especially for young people and those working in different countries. As a result, the fundamental principle of freedom of movement, which gives EU citizens the right to live and work in any EU Member State, can be implemented more easily. What is more, the PEPP is contributing towards a European single market for old-age pension products and the creation of a European capital markets union.

The relatively low fees associated with the PEPP are another advantage. As a general rule, the basic PEPP will involve fees and administrative costs that are capped at 1% of the accumulated capital per annum.

BaFin’s role

BaFin and the European Insurance and Occupational Pensions Authority (EIOPA) have been working on the structure and implementation of this new European pension product since 2014. Throughout the entire process, BaFin's main focus has been to ensure that the product is designed in such a way that it is transparent for consumers and can be easily supervised. The joint work carried out in the working groups at European level contributed towards the preparations for the PEPP Regulation, adopted by the European Parliament and the European Council in 2019. Its official publication in the Official Journal of the European Union in March 2021 marked the beginning of the countdown for the launch of PEPP products on the German market. Providers now have one year to inform themselves about the applicable EU requirements and can decide whether to offer a PEPP product in future. EIOPA is also conducting an EU-wide survey to determine the extent to which companies are interested in including the product into their portfolios from next year onwards.

What providers and customers should know

Providers wishing to launch a PEPP product into the market will be subject to the requirements set out by BaFin (in Germany) and EIOPA (at EU level). For instance, they will have to apply to be listed in a central register maintained by EIOPA. In addition, EIOPA will check to ensure that only registered financial products are distributed as “PEPP” products. At national level, BaFin will have the task of checking compliance with the statutory requirements for every PEPP product that is intended for the German market.

Up to six investment options with different risk profiles will be available for all PEPP contracts entered into with a PEPP provider. In addition to capped costs, the basic PEPP has the advantage that it offers customers a guarantee on the capital invested upon retirement. Alternatively, a risk mitigation technique can be used to help protect the policyholder’s capital, e.g. by switching to less risky investments ten years before retirement. Providers will be required to draw up standardised key information documents to inform customers about the most important data relating to the PEPP product in question so that different offers can be compared. These information documents will contain details on the risk profiles for individual products and information on whether money is being invested in sustainable financial investments that meet social and environmental standards.

As the PEPP is designed as a long-term pension product, contract terminations before retirement will be possible in exceptional circumstances only. However, customers will still be able to switch providers at a capped cost of 0.5% at most or to switch to a different investment option with the same provider at least once every five years.

Customers will make regular payments to their PEPP accounts, although it should be noted that the beneficiary and the saver are not necessarily the same person. If the account holder moves to a different EU country, a sub-account that fulfils the national requirements in their new country of residence will be opened.

Savers can choose between a number of payment options upon retirement, such as annuities, a lump sum or drawdown payments. It is possible to combine different options, too.