Abstract
The article provides a general framework for the proposal for the Pan-European Personal Pension Product (PEPP) and details some particular aspects that will be discussed in the context of its application such as “national compartments” and the problem of PEPP taxation.
The PEPP is analysed as an instrument of the Capital Markets Union (CMU). It is concluded that it represents an opportunity for the EU to obtain long-term investment liquidity but also that, in the end, it is just a small palliative measure to alleviate the structural deficiencies of the EMU that remain to be solved.
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Notes
- 1.
See Rodrigues (2018), pp. 65–82.
- 2.
See Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, OJ L 79I, 21.3.2019. On the new approach of the EU to international trade, see Rodrigues (2017).
- 3.
See Rodrigues and Gonçalves (2017).
- 4.
It is known that in the next 50 years, the share of the retirement age population compared to the share of working age will double (to four to one, from two to one, i.e. two working-age people for each retired person). See Calu and Stanciu (2018), p. 102.
- 5.
The working age population (aged 15 to 64) shrank for the first time in 2010 and is expected to decline every year to 2060. In contrast, the proportion of people aged 80 or over in the EU-28 population is expected to more than double by 2050, reaching 11.4%. For more in-depth information see Nieminen and Eatock (2018), p. 5.
See also the Study on the feasibility of a European Personal Pension Framework, FISMA/2015/146(02)/D, European Commission, 2017, available at https://ec.europa.eu/info/sites/info/files/170629-personal-pensions-study_en.pdf (last accessed April 2019), p. 260: “In the context of a challenging economic environment with low rates and different trends in government budgets, anticipating the evolution of pensions only within the framework of the first and second pillars does not appear to be sufficient to fill the pension gap. Hence, the development of supplementary pillar 3 products has become a major issue for Member States and European institutions that is likely to continue in the next decade.”
- 6.
The Treaty on the Functioning of the European Union (TFEU) does not provide powers other than those of Article 308 to take appropriate measures within the field of social security for persons other than employed persons. See recital 2 of Regulation (EC) No. 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems. Limits also arise from the subsidiarity principle. See Article 5 of the Treaty of the European Union.
Nevertheless, according to Article 114 of the TFEU, the EU has competence when dealing with the internal market, which was used as the legal base for the proposal for the PEPP.
- 7.
See the communication of the European Commission issued on 19 April 2001, “Communication on the elimination of tax obstacles to the cross-border provision of occupational pensions”, COM (2001) 214 – 2001/2212 (COS): “A fully functioning single market for occupational pensions is essential to ensure that citizens are able to exercise their rights to free movement enshrined in the EC Treaty and thus to enhance labour mobility”.
- 8.
See the Proposal for the Regulation of the European Parliament and of the Council on a pan-European Personal Pension Product (PEPP), Brussels, 29.6.2017, COM (2017) 343 final.
- 9.
According to the EC, currently only 27% of Europeans between 25 and 59 years old have enrolled themselves in a pension product. See EC - Capital Markets Union: Pan-European Personal Pension Product (PEPP), Brussels, 4 April 2019 available at http://europa.eu/rapid/press-release_MEMO-19-1993_en.htm (last accessed April 2019).
- 10.
See, in the USA, the Employee Retirement Income Security Act of 1974 (ERISA).
- 11.
- 12.
See Articles 4, 2, b) and 153, 1, c) and k) do the TFEU. See also Vila (2018), p. 82.
- 13.
See recital number 1 and 2 of the proposal.
- 14.
See the definition in footnote 26 of the proposal: “The requirement that a trustee, an investment manager of pension funds, or any fiduciary (a trusted agent) must invest funds with discretion, care, and intelligence. Investments that are generally within the prudent person rule include solid “blue chip” securities, secured loans, federally guaranteed mortgages, treasury certificates, and other conservative investments providing a reasonable return.”
- 15.
See recital number 37 and article 33 of the proposal.
- 16.
There is only one reference in Article 49 of the proposal concerning the protection of savers in the event of financial losses below the PEPP provider’s default.
- 17.
- 18.
See Nieminen and Eatock (2018) p. 4.
- 19.
Portability is not allowed, at present, for any other third pillar product. Even for pillar I and II there is no legal framework for the transfer of pension contributions within the EU. For pillar I, see Regulation (EC) No. 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems. For pillar II, see Directive EC/2014/50 that requires the preservation and fair treatment of occupational pension rights for workers moving across borders.
- 20.
See the European Commission communication issued in April 2001, “Communication on the elimination of tax obstacles to the cross-border provision of occupational pensions”, COM (2001) 214 - C5-0533/2001.
- 21.
E.g., no mandatory holding period or possibility of changing the level of in-payments.
- 22.
Tax incentives may take the form of a tax reduction, reduced tax base, tax credit or other (e.g. financial incentives).
- 23.
There are different ways to tax such as the ETE system or the EET system. See the Study on the feasibility of a European Personal Pension Framework, FISMA/2015/146(02)/D, European Commission, 2017 available at https://ec.europa.eu/info/sites/info/files/170629-personal-pensions-study_en.pdf (last accessed April 2019), p. 18.
- 24.
There are many cases from the ECJ that have shown that withholding tax practices in many EU Member States is discriminatory with respect to dividends earned by foreign funds. See, for example, Denkavit, C-170/05, 14 December 2006, ECLI:EU:C:2006:783; Amurta, C-379/05, 8 November 2007, ECLI:EU:C:2007:655; Aberdeen, C-303/07, 18 June 2009, ECLI:EU:C:2009:377; Santander, joined cases C-338/11 to C-347/11, 10 May 2012, ECLI:EU:C:2012:286. Also, from the EFTA court, see Fokus Bank, case E-1/04, 23 November 2004.
- 25.
The EC starts from the national treatment principle, stemming from Articles 21, 45, 49, 56 and 63 of the TFEU and interpreted by the Court of Justice of the European Union, to consider this applicable to PEPP savers. See, for example, several ECJ cases such as De Groot, C-385/00, 12 December 2002, ECLI:EU:C-2002:750 (paragraph 94); Turpeinen, C-520/04, 9 November 2006, ECLI:EU:C:2006:703 (paragraph 20) and Renneberg, C-527/06, 16 October 2008, ECLI:EU:C:2008:566 (paragraph 51).
- 26.
See the Study on the feasibility of a European Personal Pension Framework, FISMA/2015/146(02)/D, European Commission, 2017, available at https://ec.europa.eu/info/sites/info/files/170629-personal-pensions-study_en.pdf (last accessed April 2019). According to the study, 37 out of 49 PPPs in 22 out of 28 Member States benefit from incentives on in-payments and are subject to taxation during the decumulation phase. The study concludes (p. 262) stating the need for the PEPP to benefit from tax incentives on in-payments has driven the analysis of features that should be harmonised at the EU level so that PEPP holders can have access to local tax incentives.
Discussing the effectiveness of the PEPP Tax Recommendation see Hooghiemstra (2018).
- 27.
See Nieminen and Eatock (2018), p. 15.
- 28.
See the European Commission Recommendation of 29.6.2017 on the Tax Treatment of Personal Pension Products, including the Pan-European Personal Pension Product. C (2017) 4393 Final.
- 29.
See recital 9 of the European Commission Recommendation of 29.6.2017 on the Tax Treatment of Personal Pension Products, including the Pan-European Personal Pension Product. C (2017) 4393 Final: “Member States are encouraged to extend the benefits of the tax advantages they grant to national PPPs also to the PEPP, so that a future PEPP can fall within the scope of existing national tax incentives for PPPs even when it does not fulfil all the national criteria for tax relief.”
According to the EC, the volumes for PPPs combined with the PEPP could reach EUR 2.1 trillion by 2030 in the most favourable scenario whereby the PEPP would be granted a favourable tax treatment in all Member States. See Commission Staff Working Document Impact Assessment Accompanying the document Proposal, Brussels, 29.6.2017 SWD (2017) 243 final, p. 34.
- 30.
See Skandia Ramstedt, C-422/01, 26 June 2003, ECLI:EU:C:2003:380, paragraph 62: “Article 49 EC precludes an insurance policy issued by an insurance company established in another Member State which meets the conditions laid down in national law for occupational pension insurance, apart from the condition that the policy must be issued by an insurance company operating in the national territory, from being treated differently in terms of taxation, with income tax effects which, depending on the circumstances in the individual case, may be less favourable.”
- 31.
See Lannoo (2018), p. 2.
- 32.
- 33.
See Rodrigues and Gonçalves (2017).
- 34.
See Henriques (2018), p. E-118.
- 35.
See Henriques (2018), p. E-112.
- 36.
See Henriques (2018), p. E-105.
- 37.
See the Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions, “Capital markets union: progress on building a single market for capital for a strong economic and monetary union”, 15 March 2019, Brussels, COM (2019) 136 final.
- 38.
Capital markets are financial market segments not involved in bank intermediation.
They include corporate bond issuance, corporate debt securitization, private equity investment, public equity issuance and initial public offerings, venture capital, the direct purchase of loans by insurers and investment funds from banks and credit intermediation by specialized non-bank financial firms, including leasing companies and consumer finance companies.
- 39.
See Schelkle (2019), p. 599.
- 40.
In fact, the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Mid-Term Review of the Capital Markets Union Action Plan, Brussels, 8.6.2017, COM (2017) 292 final recognized the importance of the CMU in the context of the EMU. It stated that “CMU reinforces the third pillar of the Investment Plan for Europe. It will offer benefits for all Member States, while also strengthening Economic and Monetary Union (EMU) by supporting economic and social convergence and helping absorb economic shocks in the euro area.”
- 41.
See Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions, “Capital markets union: progress on building a single market for capital for a strong economic and monetary union”, 15 March 2019, Brussels, COM (2019) 136 final.
- 42.
See Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Mid-Term Review of the Capital Markets Union Action Plan, Brussels, 8.6.2017, COM (2017) 292 final.
- 43.
See Quaglia et al. (2016), p. 185.
- 44.
See Quaglia et al. (2016), p. 197.
- 45.
See Henriques (2018), p. E-105.
- 46.
See Unlocking Funding for Europe’s Growth - European Commission consults on Capital Markets Union, available at http://uepc.org/news/article/117/Unlocking-Funding-for-Europes-Growth-European-Commission-consults-on-Capital-Markets-Union (last accessed April 2019).
- 47.
See Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Mid-Term Review of the Capital Markets Union Action Plan, Brussels, 8.6.2017, COM (2017) 292 final.
- 48.
See Quaglia and Howarth (2018), p. 991.
- 49.
See Henriques (2018), p. E-106.
- 50.
See Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - action plan on building a Capital Markets Union, Brussels, 30.9.2015 com (2015) 468 final and “Completing the Capital Markets Union: Building on the first round of achievements”, Brussels, 8 June 2017, p. 2.
- 51.
The second narrative was to boost the size and internal and external competitiveness of EU capital markets. See Quaglia and Howarth (2018), pp. 991; 998–1003.
- 52.
- 53.
See Rodrigues and Gonçalves (2017), pp. 284–285: “(…) the EMU theoretical framework is not yet closed, since the following have yet to be achieved: (i) political union, (ii) a true union of capital, (iii) an institutional regulation model for the financial system which is uniform and consistent between the Member States, (iv) an institution which, effectively, ensures the functions of lender of last resort (LOLR) and, finally, ensuring effective forms of (iv) accountability and liability within the actual Banking Union.”
- 54.
- 55.
See Articles 5/4; 6/2 and 6 and 10. Also Article 55, referring to cooperation between competent authorities and EIOPA.
- 56.
See Article 56, referring to the settlement of disagreements between competent authorities in cross-border situations.
- 57.
According to this number, 3 years at the latest after the entry into application of the Regulation, each PEPP shall offer national compartments for all Member States upon request addressed to the PEPP provider.
- 58.
See Article 63 of the proposal.
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Cunha Rodrigues, N. (2019). The Pan-European Pension Product and the Capital Markets Union: A Way to Enhance and Complete the Economic and Monetary Union?. In: da Costa Cabral, N., Cunha Rodrigues, N. (eds) The Future of Pension Plans in the EU Internal Market. Financial and Monetary Policy Studies, vol 48. Springer, Cham. https://doi.org/10.1007/978-3-030-29497-7_11
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