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Why is the EU pension plan not working?

2024-03-08 10:05:22Kosova&Bota SHKRUAR NGA REDAKSIA VOX

Why is the EU pension plan not working?

Two years after the new law came into force, the much-hyped pan-European pension product has only one provider, in just four member states. Five years after the EU finalized its new pan-European pension product, PEPP, integration is disappointing. As it stands, there is only one provider, PEPP, which has around €11 million in assets under management and is currently only available to savers in four member states.

By his own admission, his fledgling company is, in the context of the bloc's trillion-euro pension industry, still just "peanuts, nobody". At the time PEPP was launched, it did not suffer from a lack of advertising. Just before the last European elections in 2019, former Commission Vice President Jyrki Katainen said PEPP would "give all citizens the chance to save for their retirement", opening up a "genuine pan-European market ".

Lawmakers such as Brian Hayes (Ireland/European People's Party) stressed the need for a diverse range of providers, such as asset managers and insurers. A subsequent February 2022 survey by the EU pensions authority EIOPA, done just a month before the regulation came into force, suggested that 21 entities, mainly insurers and asset managers, were considering a pension plan approved by EU.

But these aspirations still do not seem to have been realized. Perhaps potential providers were deterred by the EU's long list of legal requirements to provide advice to savers and guarantee returns, all while keeping fees below 1% of capital. To some extent, these may just be the kind of new problems that are inevitable as the new law takes effect. A retirement plan lasts decades, and it can take time for the market to adjust.

But it comes as Brussels seeks to lure retail investors to the capital markets. Ministers are already talking about a Europe-wide savings product that could be the younger brother of PEPP, hopefully more successful.

Even the architects of the law admit that its results are disappointing. But you can see why the plan to unify EU pensions is an uphill battle. Member States vary enormously in industry structures, consumer expectations and tax incentives. Private retirement savings range from 1% of GDP in some countries to over 200% in others.

In more advanced markets such as the Netherlands, there is less demand for EU alternatives, while others expect to rely on state provision. Meanwhile, few governments are interested in reforming fiscal structures to meet the whims of Brussels.

Some hope may come from a legislative review the commission will soon undertake, five years after the law came into force. But for others, it's the industry that needs regulation, not legislation.


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