Europeans have a pension problem – just 27 per cent of those under 59 have any pension savings at all. But plans are afoot for a pan-European personal pension (PEPP) – designed for those whose work takes them through multiple EU countries.
If you’re employed and living in the UK, you probably have personal or workplace pension savings in one form or another. However, as many as 14 per cent of people – that’s one in seven – have no current pension savings in place, meaning they would be completely reliant on the State Pension in old age.
But in this regard we are doing far better than European nations in general. Across the EU, only 27 per cent of people between the ages of 25 and 59 have any private or workplace pensions – partly due to the widely differing legislation across EU nations, and the fact that some countries offer little or no choice for personal pension saving. To address this issue, the European commission has set out proposals for a pan-European pension product with the most favourable tax treatment that national governments can provide.
Pension saving for migrant workers
An EU pension product is likely to have particular appeal for those whose work takes them to other countries within the union. The different pension regimes in each nation may discourage many from attempting to save, being an unwieldy process that requires multiple pension pots. The pan-European personal pension (PEPP) aims to ease the problem by providing a single pension-saving product that can be used and accessed from anywhere in the EU.
Under the proposals, member states will retain their own tax treatment of pensions. It was initially hoped that EU pensions could follow a single tax regime, but this proposal was rejected by EU member states. Instead, pension contributions will receive tax treatment according to the state in which they are made, and will be kept separate. However, the administration of this will be handled by the PEPP providers, so pension savers themselves will have a single point of contact and a more straightforward experience.
Reducing Europe’s pension gap
Investor rights group Better Finance backed the EU proposals, saying, ‘[the PEPP] could reduce the pensions gap by providing a good value for money option for all European savers and pensioners.’ The implications of Brexit are not yet clear, and a commission spokesman said the possibility for UK citizens to use a PEPP would depend on the outcome of the Brexit negotiations.
Valdis Dombrovskis, a vice-president of the commission responsible for financial services, highlighted the need for a trusted EU-wide brand that would give citizens added confidence their cash was safe. He said: ‘It has enormous potential as it will offer savers across the EU more choice when putting money aside for retirement. It will drive competition by allowing more providers to offer this product outside their national markets. It will work like a quality label and I am confident that the PEPP will also foster long-term investment in capital markets.’
Alistair McQueen, head of savings and retirement with UK pension provider Aviva, sounded a note of caution, saying, ‘Europe hosts a very diverse pensions landscape with taxes, state pension systems, national demographics and cultural expectations all differing. Any attempt to lay one pensions “tablecloth” across this complex continent will not be easy. There may be PEPP demand amongst the migratory population within the EU, but this remains a relatively niche activity.’
Whatever the challenges, these proposals again highly how important it is for everyone in employment to save into a personal or workplace pension – no matter where their work may take them.
If your employment takes you to countries with different pension regimes, or if you have overseas pensions, it can be worthwhile talking to a financial adviser. An IFA who specialises in overseas pensions can show you how to maximise your tax efficiency both when saving into a non-UK pension and withdrawing funds from it.
This article was first published by unbiased on the 30th June 2017.