Extending our previous post, we present PEPP, the principal pier of the private pension plan pillar.
As we suggested in our first post, the European Union has a longstanding three-pillar pension system. Pillar 1 comprises a mandate, under which a portion of employees’ salaries are put into a collective state pension. Pillar 2, supported by the state, allows employees to have salary deductions — and voluntary contributions from their employers — put into a pension plan, which is different by country and has multiple implementation rules. Pillar 3, a private option, is a bit of both, allowing employees with life insurance policies to take the money they’ve paid in premium as one lump sum or in incremental payments like a pension or an annuity on retirement.
The European Insurance and Occupational Pensions Authority (EIOPA) research showed fewer than 30 percent of Europeans have reasonable retirement provisions. In response to the lack of pension provisions and to harmonize the regulations in all European countries, the European Union has suggested a new product; the Pan-European Pension Plan (PEPP). And each European country is trying to adopt a form of it, with the expectation that 1,400 billion euros from all European countries will accrue to provide for European pensioners.
Crossing Borders
Moving beyond the Institution for Occupational Retirement Provision (IORP, or second pillar), the PEPP is regulated by the EU across country borders; is available from banks, insurers, asset managers or IORPs; can be moved from one country or one provider to another; and is based on a defined-contribution (DC) structure. That means that, while its benefits may not be defined, its portability is guaranteed.
Another border crossed by the PEPP is chronology: While the statutory retirement age has gone up, so has life expectancy. The resulting shortage in pension funding is compounded by the fact that pensioners outnumber those of working age, causing public pension funds to be depleted. So, while PEPP supports the accumulation of individual retirement savings (the third pillar), it will also serve to mitigate public-fund depletion by complementing public pension systems (the first pillar) and occupational pension systems (the second pillar). This also creates the possibility for sizable numbers of Dutch self-employed (zelfstandige zonder personeel) and director/company owner (directeur-grootaadeelhouder) pension plan members to contribute.
We’ll Get There
The good news is that technology is changing even faster than demography. Systems are being developed to take advantage of cloud platforms (to say nothing of the Internet of Things); mobile platforms; customer-engagement capabilities that include omnichannels for marketing, customer acquisition, customer service, billing, and payments; and, of course, plan and benefits administration.
Don’t go away. Pension plans, planning, and administration are becoming much more flexible in the EU. As opportunities become more plentiful, you won’t want to miss any of them.
