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The retirement savings market & the PEPP

The retirement savings market & the PEPP

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The pan-European personal pension product (the PEPP) is waiting to clear the last hurdle in the EU legislative process. Meanwhile, a number of European countries are already opening up their pensions markets. These developments, mirrored in countries elsewhere around the globe, are providing new opportunities for asset and fund managers to enter, or more easily to compete in, the retirement savings market. These opportunities come with conditions, though, not least a continuing focus on costs and charges, and a potential price cap.


The PEPP represents a strategic opportunity for asset and fund managers. The PEPP is a voluntary retirement saving scheme, to be offered by a broad range of financial providers across the EU. It will complement existing public and occupational pension systems, alongside existing national private pension schemes. It will help to channel savings towards capital markets, facilitating investment and growth in the EU.

It is intended that the PEPP will offer consumers more choice, the benefit of greater competition, enhanced transparency and flexibility in product options. Consumers will have the right to switch providers and will be able to continue contributing to the same product wherever they reside in the EU. PEPP providers will benefit from a single market through standardised product features, which will allow them to pool assets and benefit from economies of scale.

The European Commission announced on 13 February that the European Council and Parliament had reached agreement on the PEPP’s features. The final text has still to be approved by the two bodies. This is usually little more than a formality. However, concerns about the use of the term “capital protection” could cause difficulties during the Parliament’s plenary discussion.

The PEPP is due to be implemented one year after the final text is adopted. In those twelve months, the European Insurance and Occupational Pensions Authority (EIOPA) is mandated to develop Level 2 measures – a challenging timeframe. The PEPP default option is likely to cap costs and fees, after the European Parliament insisted a cap is included in the final rules. The detailed Level 2 rules, together with national tax treatments, will be crucial in determining the PEPP’s attractiveness to providers and investors.

National pensions markets develop offerings

The French market has been dominated by insurance firms, but as part of the “PACTE” – the action plan for business growth and transformation – modernisation of the pension schemes framework is taking place, in line with the new PEPP. This is opening up the retirement products market to asset managers.

On 1 January 2019, with the aim of increasing the overall pool of retirement savings, the Polish government introduced a new system of defined contribution (DC) vehicles, known as Employee Capital Plans (PPK). They can be managed by investment fund companies and will be based on auto-enrolment with a government incentive.

In March 2018, an agreement between the Norwegian government and certain public sector unions paved the way for larger asset managers to re-enter the pensions market. Asset managers will be able to compete with the primary public sector pension provider in Norway, but await confirmation that the legislation will make tendering and competition obligatory.

The UK has given the green light to collective defined contribution pension schemes. They will allow individual pension contributions to be pooled and invested as a single fund, giving members access to wider investment opportunities at potentially lower charges. Such schemes are already offered to workers in the Netherlands and Denmark.

In Hungary, the central bank plans to modify the structure of private pension funds, private healthcare funds and retirement insurance products to form compound funds providing all services. Hungary also plans to introduce special government bonds that mature in the year of the retirement of a given client. This will impact asset managers managing retirement funds or the assets of retirement insurance products.

In Germany, a new category of pensions was heralded as a potential “golden age” for the industry. The Betriebsrentenstärkungsgesetz (BRSG), or act to strengthen occupational pensions, came into force in early 2018 and encourages the creation of government-subsidised DC occupational pension plans. BRSG bans guarantees that were often provided by insurers, allowing asset managers to compete on a more equal footing and allowing pension portfolios to increase their allocations to equities.

However, by February 2019, the new regime had struggled to gain significant traction, with risk aversion by DC scheme members cited as one of the reasons. The German regulator, BaFin, asked unions and employers to start using the scheme. The regulator acknowledged that the lack of investment guarantees could result in “uncertainty”, but noted that the new regime includes safety mechanisms, such as a “buffer” pool in times of increased volatility.

With greater market opportunities comes more prescription. The defined contribution (DC) portion of Swedish public pensions, widely known as “PPM”, is undergoing significant changes. All existing agreements were terminated at the end of 2018 and new applications are subject to an approval process that involves due diligence by the regulator, with more onerous requirements.

Since last year, Mexican pension funds have been able to invest in foreign passive funds. The regulator CONSAR announced in early 2019 that this is now extended to foreign actively-managed funds. Investment vehicles must obtain an approval opinion from an independent expert, who must meet certain eligibility criteria. In addition, funds must be registered and supervised by a regulatory authority of “eligible countries for investments”. ETFs and funds using derivatives to increase returns, to leverage or synthetically to replicate an index or benchmark are prohibited.

Brazil has allowed private equity funds for qualified investors to be 100%-invested in overseas assets and has permitted a greater use of master-feeder structures. But following the discovery of fraud in pension funds, direct investment in real estate is now forbidden and pension funds must invest via regulated real estate funds. Also, the manager of the fund must itself be at least 3%-invested in the fund to align interests.

The China Securities Regulatory Commission (CSRC) has approved 14 Chinese asset managers to launch target retirement funds. Currently, China's retirement plans rely mostly on state- and corporate-sponsored programs. The country is looking to develop target retirement funds, as part of individual retirement plans, amid pressures of aging society. The launch of target retirement funds will also improve A-share market liquidity.

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