A Portuguese insurer and a Cypriot investment firm are lining up to launch Pan-European Personal Pension Products (PEPPs), IPE has learned, as large asset managers appear set to sit out provision of the new EU product for the time being.

Ageas Pensões is looking to launch the first PEPP in Portugal and IPE understands it could enter the market on 22 March 2022, when the EU PEPP regulation enters into force.

In Cyprus, Emergo Wealth, which runs its products, including a multi-employer pension fund, under the trade name LifeGoals, is also planning a PEPP. The investment firm has been working on its PEPP project for some time and is in discussions with the regulator, the Cyprus Securities and Exchange Commission, about the product and a regulatory regime for it.

“We want to make sure that we will be able to come out with the first wave of PEPPs in Europe,” said Michael Hadjihannas, managing director of LifeGoals. “We value the fact that with a single licence we can cover all of Europe. It’s invaluable.”

Ageas’ managing director Valdemar Duarte, who is also a member of EIOPA’s Occupational Pensions Stakeholder Group, has been a major supporter of PEPPs as he believes the product will represent “the most innovative form of saving for retirement” since the launch in 1989 of the ‘plano poupança-reforma’ (PPR) – a Portuguese retirement savings plan.

Last summer Duarte told the audience of an online conference organised by APFIPP – Associação Portuguesa de Fundos de Investimento, Pensões e Patrimónios, the Portuguese association of pension and investment funds – that PEPPs aim to solve two major challenges.

Firstly, the reinforcement of the levels of savings for retirement, which, despite being very different in the various EU countries, are insufficient to respond to the challenges imposed by a growing aging population.

The European Commission forecasts that in Portugal retirement income may decrease from the current 71% to 34% in 2070.

Secondly, the promotion of a single market in terms of professional mobility, for which the multiplicity and complexity of retirement products in the various EU member states are the main obstacles. It is an individual savings product that can be managed at European level, he said.

He added that the concept that PEPP has been conceived in digital form within a common European space “removes sales and communications barriers”, he added. “Because of this, this product is more attractive to younger generations,” he said.

Tontine, an Irish fintech company, is also planning to launch PEPPs, as previously reported by IPE. The provider is still planning to be active with a PEPP in 33 countries, but the launches are dependent on countries realising how to tax PEPPs.

Slow up-take

The news of Ageas’ and Emergo Wealth’s plans comes as some expect the PEPP market to take off slowly, for reasons such as the combination of the fee cap and mandatory personal advice requirements.

Bernard Delbecque, senior director for economics and research at EFAMA and chair of EIOPA’s occupational pensions stakeholder group, told IPE the PEPP would also need to benefit from the same tax incentives as existing national personal pension products, and it is unclear that many member states have already adapted their tax rules to boost the demand for the PEPP.

At LifeGoals, the feeling is that the PEPP is made for fintech companies because the regulation allows the advice to be provided by robo advisers.

“If you don’t have the technology and the framework and the platform to cover this online it is not economically viable,” said Panayiotis Mavromichalis, executive director for strategy and asset management.

“And this is where we have invested,” he said.

Christian Lemaire, founder and CEO of New Strategy and Vision, and former head of retirement solutions at Amundi Pension Fund, was not impressed with the number of players showing interest to launch a PEPP within a market containing 27 member states.

“Even if there were 10 or 15 players showing interest, there still would not be enough for such a large market,” he told IPE.

The regulation includes a 1% fee cap which includes all costs. “Based on in-depth studies, many potential providers assessed the costs of the mandatory personalised advice as quite expensive,” he added.

Unfortunately, these comparisons demonstrated the nearly impossibility to get a profitable business model for creating and distributing PEPPs”

Christian Lemaire, founder and CEO of New Strategy and Vision

“These providers compared these advice costs with the expected maximum fees (with the 1% cap) that a PEPP provider could collect from a citizen saving 5% (an optimistic assumption) of his/her net salary of €25,000 (average salary in six western European countries = optimistic assumption),” he explained.

Lemaire, who is also a member of EIOPA’s Occupational Pensions Stakeholder Group, added: “Unfortunately, these comparisons demonstrated the nearly impossibility to get a profitable business model for creating and distributing PEPPs.”

Furthermore, he said, with current long-standing very low interest rates in Europe, capital guaranteed saving products can’t offer net positive returns, i.e. returns are below inflation.

Lemaire added that PEPP providers or distributors would need to assess and analyse all documents and information within the specific situation of each individual saver. “This will require PEPP providers and/or distributors then to commit significant resources implying significant costs,” he said.

“This will require long and costly IT developments and take years before the personal advice required for the PEPP could be efficiently provided through an automated or semi-automated system,” he added.

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