Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

The EU proposes pan-European pension products

Posted by hkarner - 8. Juli 2017

Date: 06-07-2017
Source: The Economist

A modest step to help savers, and to bring Europe’s Capital Markets Union closer

THE story of the European Union is in part that of the steady accretion of power by its central bodies. But until now the politically touchy business of running pensions has, like taxation, been zealously guarded by national governments. No longer: on June 29th the European Commission presented a long-awaited proposal for a pan-European personal-pension product, the snazzily named “Pepp”.

Any attempt to encourage Europeans to make adequate provision for their old age is welcome. The combination of ageing populations, falling birth rates and generous state pensions could leave future generations footing the bill, unless people work for longer. Especially in countries such as Italy and Greece, where the state is the main pension provider, encouraging people to make personal savings for their retirement would be sensible.

Europe’s pension landscape is fragmented. In some countries, citizens have plenty of products to choose from; others have very few. A patchwork of European and national rules, and divergent tax treatments, has meant pension pots tend to sit in national silos. The commission hopes that the new products will both help savers and provide an extra pot of money to boost investment in Europe. Indeed, the commission reckons that today’s total personal-pensions savings of €700bn ($794bn) could exceed €2trn by 2030, of which €700bn would be in Pepps alone.

The idea is that a Pepps trademark would provide reassurance about the quality of these products, which could be sold by insurers, pension funds, asset managers and banks across the EU. That should bring increased cross-border competition, leading to simpler and cheaper products for savers. The pensions would be portable, making it easier to continue to save for someone who moves jobs or countries or both. Consumers would have more choice than they do today and providers could fish in a pond of 240m (the estimated size of the EU’s working-age population).

But critics think the idea falls short of what is needed. Pepps merely broaden what is available to those choosing voluntary, private savings plans. Collective and semi-mandatory plans are arguably more important, but are not touched. In countries that rely heavily on state-funded pensions and where traditions of saving for retirement are weak, these products might make little difference. Tax treatment could also prove a hurdle. The commission can merely recommend, not mandate, that Pepps are afforded the same favourable tax treatment that governments give to their own national products.

For now Pepps are most likely to appeal to a limited number of groups, such as mobile professionals, the self-employed and those living in underserved markets, notably in eastern Europe. The announcement is, however, a victory for the EU’s “capital-markets union” (CMU), a project to reduce European dependence on bank finance and to ease the flow of capital across the continent.

Much of the progress so far on CMU—such as liberalising rules for venture-capital funds and making it easier for small firms to list on stock exchanges—counts for less without new pools of capital to tap into. Pepps amount to the first initiative to create a brand-new source of funds. The CMU was conceived, at least in part, as a way to bind continental Europe’s markets closer to Britain’s. After the Brexit vote the need to develop a pan-European capital market seems more important than ever. Pepps may do a bit to help.

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