Both supply- and demand-side measures should be implemented to improve the structure and attractiveness of the Pan-European Personal Pension Product (PEPP), the European Fund and Asset Management Association (EFAMA) has said. 

The EFAMA highlighted the European Commission's (EC) consultation on supplementary pension as a "not-to-be-missed moment" to strengthen pension systems across the EU and ensure that citizens can build adequate retirement savings. 

In particular, EFAMA backed the review of the current basic PEPP framework, arguing that this has not allowed for a wide uptake of the Basic PEPP, with specific concerns around the cost and fee cap, the rules around life-cycle strategies, mandatory advice requirements, and uneven tax treatment. 

Given this, EFAMA backed calls for the creation of a “PEPP 2.0” that is simple, appealing, and financially sustainable, suggesting that introducing workplace PEPPs could be particularly effective in Member States with limited occupational pension options.

However, EFAMA said that both supply-side measures and demand-side measures should be implemented not only to improve the structure of the PEPP, but also its attractiveness as a whole.

In particular, it suggested that removing the fee cap and lifting the mandatory advice requirement to allow execution-only options would encourage more asset managers to offer PEPPs. 

It also suggested that life-cycle investment strategies should be the default, unlocking higher value for savers currently limited by stringent risk rules and mandatory stochastic modelling.

"We believe that the Basic PEPP should be designed with a built-in life-cycle strategy as a
standard product feature," the association stated. "This would ensure that the investment approach gradually adjusts asset allocation to reduce financial risks as savers approach retirement.

"A default life-cycle strategy is also a prerequisite for removing the advice requirement; otherwise, the account’s investment strategy would need to be aligned with the client’s individual risk profile."

The EFAMA also made a call to "transform the PEPP into a label", which could be awarded to products that focus on high-growth and life-cycle investment strategies, globally diversified asset allocation, holding period until retirement, with no guarantees.

It suggested that the PEPP label could also be granted to national products that meet these standards

The association's response also outlined some specific demand-side measures to increase the potential market for the PEPP, including calling for the establishment of a "true pan-European market for the PEPP", which would ensure the PEPP received the same tax treatment as national pension products.

In addition to this, it suggested that a second pillar or workplace PEPP could benefit Member States with underdeveloped occupational pensions, as well as workers with limited access to existing second pillar schemes, such as mobile or self-employed workers.

The EFAMA also backed the EC's promotion of auto-enrolment for occupational pensions, strongly suggesting that, again, life-cycle investment strategies be used by default to ensure adequate returns. 

EFAMA director general, Tanguy van de Werve, said: "This is the most ambitious initiative by the Commission regarding supplementary pensions to date. Time is running out, and immediate action is needed to address one of the most urgent challenges posed by Europe’s ageing population. 

"EU citizens must benefit from expanded occupational and private pensions to avoid old-age poverty, which currently affects one in five Europeans. Two key strategies include increasing auto-enrolment in workplace pensions and revitalising the PEPP."

Adding to this, EFAMA regulatory policy adviser, Gabrielle Kolm, said:  "Life-cycle investment strategies will be crucial for the EC's pension adequacy objectives, as they have the potential to improve retirement outcomes across Europe. 

"By incorporating professionally designed, age-appropriate investment approaches with high-growth opportunities, savers can achieve both security and higher returns, thereby increasing their financial security in retirement.”

Whilst the Cross-Border Benefits Alliance Europe also backed plans for a new version of the PEPP framework and agreed that this could have a role in the occupational market, other associations, such as the European Association of Paritarian Institutions (AEIP) have been less convinced, stressing the need to instead focus on existing occupational pensions.

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