Pan-European pension scheme to have ‘limited impact in Ireland’

New proposals to establish a pan-European pension product to help people save for retirement will likely have a limited impact in Ireland due to the high number of personal plans already in existence, the head of the country’s industry lobby group has said.

Jerry Moriarty, chief executive of the Irish Association of Pension Funds, which represents the the interests of occupational schemes in Ireland, was commenting after the European Commission unveiled wide-ranging plans to provide more choice for consumers to encourage them to set aside money for old age.

The newly-proposed pan-European personal pension product (PEPP) is also intended to boost the growth of an EU industry that is currently worth about €700 billion.

Europe is facing an unprecedented demographic challenge that is likely to significantly increase pressure on public finances in the years ahead. Over the next 50 years, the share of the population in retirement-age versus those in working-age is forecast to double. However, currently, only 27 per cent of Europeans between 25 and 59 years old have enrolled themselves in a pension product, and the market for personal plans is seen as being fragmented and uneven.

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PEPP is intended to create a voluntary single personal pension product that can be bought or sold anywhere in the European Union.

As well as making it simpler for savers, consumers are also expected to be able to benefit from increased competition from pension providers and a more dynamic marketplace.

Speaking to The Irish Times, Mr Moriarty said the jury is out as to what impact PEPP might have but added that "it certainly has some potential to change the landscape a little bit."

“There was a little bit of surprise when this was raised initially as it is almost a case of a regulator creating a product, which is unusual,” said Mr Moriarty.

He said PEPP would be more likely to benefit savers in countries where there is little or no market for personal pension products.

“I don’t expect it to have a huge impact for Ireland because we already have personal pensions. I think it is more designed for countries where pension coverage is lower and where there is more reliance on state provision,” Mr Moriarty added.

He said countries that have a low take-up of personal pensions, such as the Netherlands and Germany, where occupational pensions are the norm, would be wary of the proposed scheme.

Mr Moriarty said however, the new plan was likely meant to bring the benefits of scale usually seen in occupational schemes to personal plans.

“Another benefit could be it will set some standards as I’d imagine the standards that would apply on a pan-European basis would probably then also be expected on domestic products as well,” he said.

The European Commission has recommended that member states grant the same tax treatment to the proposed product as to similar existing national products to ensure that PEPP gets off to a flying start.

However, Mr Moriarty said given the different rules that exist on pensions in different member states, he didn’t expect to see a “seamless transition” for those moving abroad

Each country has its own rules on how much you can contribute, the form in which you can take benefits, and the amount you get tax relief on and so on. I think what you’ll end up with is all of these segments that are subject to separate rules. It’s not like you will have seamless transition across Europe but it will make it a little easier if you go to a new country in that you don’t have to start up from scratch,” Mr Moriarty said.

Fine Gael MEP Brian Hayes said the proposals could provide a major boost in the take-up of private pensions in Ireland.

“In Ireland we have a pension time bomb coming down the tracks. Only about 41 per cent of the working population is covered by a private pension scheme, whether that is a workplace pension or a personal pension. That means that hundreds of thousands of workers could be dependent on a state pension into the future,” said Mr Hayes.

“The Irish government needs to get on board with this proposal to get the best result for people who want to put money aside for retirement, “ he added.