New plans for a European Union (EU) pension could make saving for retirement more straightforward for people who move from one member state to another during their careers – but it is not yet clear whether the scheme will be open to Britons following Brexit.
Proposals published last week by the European Commission (EC) pave the way for the launch of a stripped-down and low-cost private pension, the pan-European pension product (Pepp), which would be portable across all the member states. In part, the proposal aims to address Europe’s savings gap. While it is concerning that 14% of adults in the UK have no private pension savings at all, the position across Europe as a whole is far worse: just 27% of EU citizens have private savings, according to the European Insurance and Occupational Pensions Authority. However, the EC also sees Pepps as another step towards its long-standing ambition for a capital markets union, with harmonisation of the EU’s financial markets due to be completed by 2019.
To achieve these goals, the EC envisages the Pepp operating as a kitemark, with authorised providers permitted to sell products across every EU member state. The plans would have to offer a range of investment options, including capital-protected choices for conservative savers and more aggressive vehicles for those prepared to take greater investment risk. Charges wouldn’t be capped, though providers would be required to set out the lifetime cost of the plans up front.
Pepp holders moving between EU countries would be entitled to take their pensions with them, either by opening a new segment of their existing plan for each new country, or by moving their savings to a new Pepp provider on arrival. The EC also proposes to cap costs on transfers between Pepp providers, with plans to allow a free switch once every five years.
While financial advisers point out that it is already usually possible to achieve pensions portability with existing products and services across the EU, mobile workers frequently complain about the complexity of doing this. Nevertheless, plans for Pepps are less ambitious than the EC had originally hoped, with an arrangement for standardised tax treatment of the plan proving impossible to reach. Instead, each EU member state will be entitled to decide for itself what tax incentives to offer Pepp savers. The exact rules on how and when benefits can be drawn are also likely to vary from country to country.
UK pension providers with authorisation to sell products elsewhere in the EU would be entitled to market Pepps across all its member states, assuming their authorisation is not curtailed by Brexit, said the EC last week. But the availability of Pepps to UK citizens will depend on the outcome of Brexit. In practice, however, Pepps may have limited appeal to British savers, other than to those who move to EU member states for work. While the portability of Pepps would be welcome to this group, the plans do not look set to offer advantages over the products already available to people in the UK.
In particular, the UK’s auto-enrolment regime, through which all employers must now offer occupational pension provision to their staff, means anyone in employment already has access to a pension scheme that must meet basic minimum standards. For self-employed UK workers, meanwhile, the competitive personal pension market may prove more attractive than Pepps.