Asset managers incorporating environmental, social and corporate governance (ESG) factors into their investment processes stand to benefit from the introduction of the pan-European personal pension product (PEPP), according to credit rating agency Moody’s.
Providers with “cross-border capability and expertise in ESG investment” would be well placed to take advantage of the new market, Moody’s said, as would insurers offering personal pensions.
The PEPP regulation, adopted by the European Parliament on 4 April, includes a requirement that “savings should be invested taking into account ESG factors”, including the climate and sustainability objectives of the Paris agreement on climate change and the UN’s Sustainable Development Goals.
Moody’s added: “Insurers, which currently account for the bulk of the personal pension market, will benefit from expanding their primarily domestic activities to cross-border distribution in the EU, taking advantage of scale and asset pooling.”
An EY-authored study for the European Commission has forecast that personal pension assets could grow from €700m as of 2017 to €3.5trn by 2030.
Moody’s highlighted the EU’s 243m working-age citizens, and said the PEPP was likely to appeal to people who “work in an EU country other than their state of residence, and those that live in an EU country other than their state of citizenship”. The product could also be of interest to self-employed workers, the agency said.
However, data from Eurostat – the EU’s statistics bureau – show that just 0.9% of the EU’s population commuted across national borders for work in 2015.
PEPPs will be overseen by the European Insurance and Occupational Pensions Authority and include a “clear set of information” for each user, according to the European Parliament.
In addition, investors will be required to take financial advice before accessing PEPPs “to make sure savers know what they are buying and what they may expect”.
The “basic option” PEPP will have a cost cap of 1%, with investors given options for the investment risk level they want and the ability to switch providers, with switching costs also capped.