A change in the regulations of Pan-European Personal Pension Products (PEPP) to explicitly allow them to be used for workplace pensions could “blur the lines” between the second and third pension pillars, PensionsEurope has warned.

In its position paper on the PEPP review, which is part of the European Commission’s supplementary pension package to boost uptake of pension saving, Pensions Europe said it was “dissatisfied” with the new legal provisions aimed at ensuring member states do not prevent employer contributions to a PEPP.

The association highlighted that the two PEPP providers currently operating already offer the PEPP as a potential employee benefit, with the employer contributing to the PEPP as a third party, as set out under Article 36(1)e of the PEPP regulation.

It also noted that Article 6(1)c of the PEPP regulation states that IORPs are allowed to sell PEPPs, to the extent that the national law in which the IORP operates allows it to sell personal pension products.

Member states can also allow tax incentives to be given on the contributions to PEPPs, the association noted.

“While the PEPP is already used in some workplace contexts, we believe that explicitly pushing the use of PEPP in a workplace context can create legal uncertainty in member states with well-developed pension systems,” PensionsEurope stated.

Moreover, it believes that allowing workplace PEPPs could “risk destabilising” pension schemes where their success depends on pension policy decided at a national level and not at the EU level.

“These pension systems can rely on compulsory participation of employers in certain sectors, which can be undermined by the PEPP’s voluntary nature (for the employer),” the association explained.

It further argued that given the establishment of pension schemes is often rooted in collective bargaining systems and the triangular relationship between the employee, employer and pension provider, the need for a workplace PEPP is absent.

“Depending on the national context, the introduction of a workplace PEPP could also lead to unintended risk and cost issues for employers in the areas of consumer protection and/or labour law,” PensionsEurope said.

PensionsEurope secretary general, Matti Leppälä, added: “The PEPP is particularly useful for those who don’t have access to workplace pensions, as self-employed and workers in new forms of employment, or where personal pensions at the national level and private managed social security schemes offered are not reliable or attractive.

“The review of the PEPP should avoid undermining existing well-functioning pension systems and legislating on its tax treatment. Tax incentives given at the national level are key to ensuring the development of personal pension products.”

---