Personal Pensions in the European Union

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Download full policy paper: policy-brief-on-personal-pensions

The principle of free movement of capital, goods, people and services comprises the main pillar of the European Economic Area. Excessive national regulation, however, prevents EU Member States from reaching its full potential, particularly in the free movement of capital which is subject to extensive regulation at the national level. With the aim of strengthening the single market for capital, the European Commission will assess the case for a policy framework to establish European personal pensions.

Commendably, the Commission acknowledges the need to encourage more savings into personal pensions in order to secure adequate revenues for retirement, especially as the ratio of retired people to workers is expected to double by 2050. To that end, the Commission has announced a public consultation to identify potential obstacles to the uptake of personal pension products and ways to best address them, also stressing the need of deregulation and higher transparency in personal pension products. The Commission is seeking advice on issues that hamper the development of cross-border personal pensions.

As a potential solution, the Commission sees several approaches:

  • Establishing a Personal pension account: a personal pension account such as the Individual Retirement Account (IRA) offered in the United States would be introduced at the EU level. According to the Commission, the proposed cross-border saving account would ensure higher access (especially for migrant workers), multiple ways of contribution and participation of temporarily unemployed individuals in personal pension saving schemes, allowing potential savers to benefit from the free movement of capital and services.

  • Establishing a Personal pension product: a personal pension product could be developed based on a set of common and flexible features with a specific retirement objective. Such features might cover transparency and disclosure requirements, investment options, accumulation and decumulation phases, distribution models, consumer contractual rights, guarantees and fees and charges. This would be set out at the EU level through a legislative act;

  • Harmonizing national personal pensions regimes: under this approach, personal pension requirements would be harmonized across Member States in terms of prudential supervision, possible providers, maximum costs, contract law, distribution models, etc.; however, tax requirements applicable to personal pension products would still be determined at national level.