German pension association Arbeitsgemeinschaft für betriebliche Altersversorgung e.V. (ABA) has said it does not believe that a revised Pan-European Pension Product (PEPP) will “substantially contribute” to counteracting the growing pension gaps in many EU member states.

In response to the European Insurance and Occupational Pensions Authority’s (EIOPA) paper on the future of PEPP, which outlined the authority’s suggested improvements to the product’s design, ABA said the pension landscapes of member states were too diverse for a one-size-fits-all approach.

While the ABA agreed with EIOPA’s assessment that a further dissemination of funded pensions can help to counteract growing pension gaps, it stated that the slow uptake of PEPP reflected the assertion that member states were too diverse for a one-size-fits-all approach.

The association argued that the proposed measures for the re-design of PEPP would lead to ‘new frictions’ in member states’ pension systems, rather than enabling more pension savings.

“We reject the proposal to help this so far unsuccessful EU product by offering it in the second pillar, making it more attractive through tax incentives and automatically including employees,” ABA said.

ABA stated that, as several member states achieve adequate replacement rates within their respective three-pillar systems, the argument that there was a need for a ‘simple, long-term European savings product’ was “too sweeping of a statement”.

Furthermore, it argued that the fact a “relatively high” share of savings was being held in deposits or savings accounts was not due to a lack of adequate investment or saving options, but a reflection of the current uncertainty.

The association also questioned whether a product developed at EU level could meet the needs to the 27 member states with “very different” requirements.

ABA added that the proposed extension of PEPP to the second pillar was “even less likely to succeed” than the PEPP regulation’s initial intention of establishing a pan-European third pillar.

“This is especially the case given that, according to EIOPA, the PEPP should be highly flexible, portable and simple,” ABA continued.

“However, since occupational pensions are deeply rooted in national social, labour and tax law, they are by nature rather complex (for the individual members of occupational pensions schemes, this complexity is however often mitigated by the fact that key decisions are taken in a pension fund’s committees by experts that include employee representatives).

“Furthermore, given that they are typically part of an employment contract, occupational pension plans are usually tied to a specific employer or industry and cannot be simply transferred to a new provider.

“Generally, irrespective of the pillar, there is a contradiction between flexibility in the savings phase and the requirement to generate a secure and adequate retirement income – as can be witnessed in many countries that allowed savers to withdraw funds from their retirement accounts during the Covid pandemic.”

The association acknowledged that a uniform set of rules on a given pension n product could be beneficial to certain policies and goals of the EU, such as the internal market, free movement of workers, and the capital markets union, and said that the EU economy would benefit from a further expansion of funded pension provision in the form of more long-term investment.

However, given the widening pension gaps in many member states, it argued that occupational pensions primarily serve a social function, namely to provide adequate retirement income.

“Especially given the stress that the demographic change puts on public pension systems, this function may not be thwarted in order to achieve other political goals, however important they may be,” it added.

“Last but not least, prudential regulation needs to be respected.”

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