In Brussels pensions remain a permanent topic of discussion. Now, the European Commission has presented the European pension – a personal European pension product, which, according to plans of the EU Commission, should close gaps in statutory pension systems. However, above all the proposal boosts to the financial industry, then able to offer new products.
According to the Commission, the so-called PEPP (Pan-European Pension Product) shall act as an extension to national pension schemes. On the one hand, it should boost the capital market, thereby contributing to the planned Capital Markets Union; on the other hand, consumers should be able to benefit from a simple EU-wide private pension. In its proposal for a regulation, the Commission provides for insurance companies, banks, occupational pension funds, but also investment firms and asset managers to develop pension products in accordance with certain criteria. As soon as these have been approved by the European Insurance and Occupational Pensions Authority Eiopa, they may be offered throughout the European Union.
Consumers should be able to choose between a maximum of five different risk options, to freely switch between asset classes and to change the provider for a capped fee every five years. When moving to another EU country, it should also be possible to take PEPP to the respective country.
In particular the supplementary and not replacing function of such a product is of utmost importance. As was recently discussed in great detail based on a comparison between the German and the Austrian pension system at an AK EUROPA event, expanding the occupational and private pension at the expense of maintaining the living standard trough public pension (first pillar) could lead to severe cuts in future pension levels. In Austria, differently from Germany, significantly less emphasis has been placed on the second and third pillar. Instead the public pension system has been strengthened thereby enabling a high level of pension, which will secure the living standard in old age and avoids old-age poverty.
The example of Germany also shows that a lack of regulations concerning the second and third pillar, might lead to frequently denying access to people with no financial means who could benefit from supplementary benefits as their statutory pension is too low. This concerns especially people, who, for example due to low income, atypical employment or interruptions in the employment history differ from the classical full-time profile, which means that the most affected group is women.
In view of the current low-interest environment and the comparatively high cost, it also questionable whether private pensions indeed entail an added value. As an AK Study shows, fewer and fewer guaranteed interest rates are being offered in Austria. In addition, insurance holders must reach a ripe old age to ensure that the amount of the pension received from private pension schemes does indeed exceed the amount of paid premiums. In comparison, the so-called supplementary insurance via the statutory pension scheme is a more secure and more attractive solution to receive a higher pension.
To ensure that the entire population and not just a small circle and the financial industry will benefit, it is important to keep a close eye on further developments. After the proposal of the Commission, the ball is now in the corner of Council and European Parliament.