Reflections on the occupational PEPP (should it ever be proposed)

The upcoming reform of the PEPP Regulation is reviving an idea that, until recently, seemed merely theoretical: the creation of an occupational PEPP, designed for employers and their employees. This topic is of particular importance to Cross-Border Benefits Alliance – Europe (CBBA-Europe) and its members, and was recently debated during the Association’s annual conference, held on 9 October in Brussels, with the participation of policymakers and stakeholders from across Europe.

If realised, it would mark a historic step toward a genuine single market for occupational pensions in Europe, a framework able to serve not only multinational companies operating across borders but also smaller enterprises, for which the offer of occupational pension solutions could be broadened and made more competitive through providers based in other EU member states. However, for this project to succeed, several key issues must be addressed with realism.

It is generally accepted that the new occupational version should not be constrained by a rigid fee cap or by other requirements previously applied to the personal PEPP, particularly since those restrictions are expected to be removed from the personal PEPP itself. The real challenge, however, lies in determining how, and to what extent, this new product will be able to compete on a level-playing-field basis with existing national occupational pension schemes.

For example, we are all aware that several trade unions fear the arrival of a European occupational PEPP because, according to them, it could undermine the traditional jointly-managed governance between social partners and might even jeopardise the mandatory participation rules of sectoral schemes established through collective bargaining, thereby opening the door to competition. In response to these concerns, it should be recalled that the PEPP Regulation is not designed to replace national regimes, but to complement them, offering a voluntary, flexible and pan-European framework. In EU legal terminology, it represents a “2nd (or 28th) regime”. In other words, trade unions and employers’ organisations will always remain free to keep using national pension schemes, or to continue doing so where they already exist.

Moreover, European case law already confirms that existing mandatory sectoral schemes created by collective agreements, requiring workers to join a specific pension fund, are legally justified and not incompatible with EU competition law. Those rulings, adopted since the 1990s in cases concerning potential competition between national pension funds, would naturally apply also to occupational PEPPs. In other words, nothing would change: the same exemptions currently used to limit competition between national schemes would equally apply to European ones, ensuring a true level playing field.

“The new regulation must explicitly define the occupational PEPP as occupational by nature”

Francesco Briganti, CBBA-Europe

A different reasoning applies, however, to markets where competition among national funds already exists. In such cases, excluding a European pension vehicle where domestic competition is already allowed would be unjustifiable and contrary to the principles of the EU internal market. Here, the level-playing-field principle should work in the opposite way: European pension vehicles must enjoy the same competitive freedom as national ones. And on this point, I’m sorry to disappoint some, but apart from the legitimate exceptions mentioned above, we still believe that competition between services, including supplementary pensions, can often be beneficial to citizens and users alike, and we should not forget that it remains one of the very pillars on which this Union was founded.

In this context, the tax dimension of the new occupational PEPP will be decisive. As is well known, in many EU countries, occupational pensions benefit from specific tax incentives, often more generous than those granted to personal pension products. To begin with, the new occupational PEPP should, by its very definition in the revised Regulation, be recognised and described as an authentic occupational pension. Merely stating that the new PEPP “will also be open to employers’ contributions” would not suffice to make it occupational.

Occupational pensions have specific characteristics. Furthermore, as the Court of Justice has clarified, occupational pensions should be considered “deferred wages”. In other words, they represent benefits that a worker could theoretically receive today as part of his or her remuneration, but that are instead deferred until retirement. This principle inherently links the contributions paid into such schemes to a professional activity from which those contributions directly arise.

It is equally recognised that, when not mandatory, occupational pensions are often offered by open (multi-employer) pension funds to unrelated companies. Moreover, occupational pensions in Europe are not always subject exclusively to the IORP II Directive: in many countries, for instance, in Scandinavia or France, they are managed by insurance entities without being any less “occupational” in nature. While joint governance between employers and trade unions is not mandated by these EU legislations, nothing prevents such arrangements from continuing wherever they are established. For these reasons, there is no justification for excluding the possibility that occupational pensions might also be governed by another EU instrument, such as the (occupational) PEPP Regulation, which would not, by itself, be less stringent than IORP II in terms of prudential, governance, disclosure or investment requirements.

Yet the crucial point remains: the new regulation must explicitly define the occupational PEPP as occupational by nature. Otherwise, member states unwilling to welcome this product would have the perfect (and legally sound) pretext not to grant it the same tax incentives as company-based pension schemes, effectively treating it as a mere individual pension product.

Another key aspect should not be overlooked. The current European Commission’s 2017 Recommendation for equal tax treatment of PEPPs and PPPs covers (logically) only personal products. A new occupational PEPP would therefore require either an updated Commission’s recommendation replacing the term “PPPs” with “complementary pensions”, or a new separate recommendation specifically dedicated to the occupational PEPP, suggesting equal tax treatment with national occupational pensions, to be adopted alongside the new regulation. This issue becomes even more sensitive considering that the 2017 Recommendation has not yet been followed by all member states, generating clear discrimination between comparable national and European products within what is supposed to be a single market.

It is clear that if these two actions are not undertaken by the European Union — namely, a clear and unequivocal definition of the “occupational” nature of the new PEPP, and an updated Recommendation on equal tax treatment with national occupational pensions, the failure of the occupational PEPP to take off will be the result of a conscious political choice: the decision not to disturb certain stakeholders and member states that remain openly hostile to any European initiative aimed at creating a more competitive and integrated market for complementary pensions, while also promoting mobility, competition and long-term savings.

Francesco Briganti is the secretary general of the Cross-Border Benefits Alliance – Europe (CBBA-Europe), a Brussels-based association advocating for a deeper integration of the EU market for occupational and personal pensions