Executive summary EY FISMA/2015/146(02)/D. Study on the feasibility of a European Personal Pension Framework

Transcription

1 Executive summary EY FISMA/2015/146(02)/D Study n the feasibility f a Eurpean Persnal Pensin Framewrk June 2017

2 Study n the feasibility f a Eurpean Persnal Pensin Framewrk DISCLAIMER The infrmatin and views set ut in this study are thse f the authrs and d nt necessarily reflect the fficial pinin f the Eurpean Cmmissin. The Eurpean Cmmissin des nt guarantee the accuracy f the data included in this study. Neither the Eurpean Cmmissin nr any persn acting n the Eurpean Cmmissin s behalf may be held respnsible fr the use which may be made f the infrmatin cntained therein. DOI: / ISBN: Eurpean Unin, (2017). Reprductin is authrised prvided the surce is acknwledged 2

3 Study n the feasibility f a Eurpean Persnal Pensin Framewrk Executive summary All EU Member States are facing cnstant challenges with regard t ageing ppulatins, pensin sustainability and adequacy f the pensin regimes. In the cntext f a challenging ecnmic envirnment with lw rates and different trends in gvernment budgets, anticipating the evlutin f pensins nly within the framewrk f state-based and ccupatinal pensins (pillar 1 and 2) des nt appear t be sufficient t fill the pensin gap. Hence the develpment f persnal pensins (pillar 3) has becme a majr issue fr Member States and Eurpean institutins that is likely t cntinue in the next decade. Aware f these fundamental challenges, the Eurpean Cmmissin has launched a study with EY n the feasibility f a Eurpean Persnal Pensins framewrk in the cntext f the Capital Markets Unin (CMU) actin plan. This study was based n the fllwing steps: Tax mapping cnsisting f the identificatin f tax, scial and labur requirements applicable t the available PPPs (1); A PPP market verview cnsisting f the descriptin f the PPP markets in each Member State (2); The ranking f the existing persnal pensin prducts depending n the level f market penetratin, identificatin f their key features and understanding f the sensitivity f the prducts vis-à-vis certain key features, in the cntext f the identificatin f certain clusters frm a tax perspective (2, 3 and 4); A technical feasibility assessment (5 and 6): the bjectives f the final feasibility assessment (6) based n a preliminary assessment f the PEPP market ptential (5) were as fllws: assess the prduct s added value frm supply and demand side perspectives, assess the prduct in cmparisn t available persnal pensin prducts (hereafter PPPs ), assess their crrelative tax legislatin; analyse the practical implementatin aspects and; evaluate the market ptential fr such a prduct (update f the preliminary assessment) Deliverables Key findings Steps Tax mapping: 1 tax classificatin trees and tax ID card fr each pensin prduct persnal Despite the diversity lcal regulatins, the majrity f the persnal pensin prducts analysed fall under the same type f tax regime (17 ut f 28 Member States have a PPP gverned by a similar tax regime) with the fllwing general characteristics: - In-payments benefit frm tax exemptin, mstly thrugh a reductin f the persnal incme tax base with a limitatin n the amunt f inpayments qualifying fr tax exemptin and/r incme limitatin (19 ut f 28 Member States incentivise in-payments); - Out-payments are taxed. 3

4 Study n the feasibility f a Eurpean Persnal Pensin Framewrk The main frm f ut-payments bserved is the annuity. Hwever, it shuld be nted that in mst cases, there is n mandatry frm f ut-payment and the pensin saver can chse between different ptins - mainly between annuities and a lump sum. Anther trend bserved is that early ut-payments are, in mst cases, either limited r penalised when there is n limitatin. The taxatin f the yield during the accumulatin phase is nt relevant fr tax regime classificatin purpses; mst f the prducts are exempt frm tax n the yield. Clustering based n PPP features Current PPP tax regimes acrss the EU shw a high level f hetergeneity. Hwever, the mst representative verall tax regime is EET/ETT Fur different appraches t the clustering f PPPs were adpted with the aim f identifying cmmn denminatrs in tax treatment acrss Member States. Clustering A: The aim was t identify prducts with the same features (based n 20 questins selected) giving access t tax incentives. Due t the diverse nature f prduct features, it was cncluded that such clustering was nt pssible. Clustering B: Anther clustering peratin was perfrmed based n the answers t 17 ut f 20 questins selected. This clustering gives the mst significant results. It resulted in a cluster f 14 PPPs with 100% cmmn feature requirements t benefit frm tax incentives. The ther tw attempts at clustering (C and D) did nt prvide relevant results: - The results f Clustering C based n a hierarchical clustering apprach shwed a high level f hetergeneity; - The results f Clustering D are based n the decumulatin ptins allwed and are very similar t the results btained frm Clustering B. 4 The market verview PPP As the current PPPs have very diverse tax features, n relevant cluster was identified, ntably with respect t the decumulatin phase. A PPP market descriptin is prvided, taking int accunt: (i) Assets under management (AuM) (ii) the number f PPP hlders and (iii) the level f in-payments. Three relatinships are identified in this study. While the level f AuM seems t increase with the level f husehld financial assets, a link als exists between the number f PPP hlders and the size f the ppulatin. Finally, the level f in-payments is impacted by the husehld savings rate. 2 4

5 Study n the feasibility f a Eurpean Persnal Pensin Framewrk Prducts with a high Market Penetratin Index (MPI) and their key features The current develpment f the PPP market reveals a stark difference between PPPs with a high MPI and ther PPPs T identify the mst successful PPPs, a market penetratin index (hereafter referred t as "MPI") was built. This index cnsists f three dimensins which captures the relative level f capitalizatin f each PPP (as measured by AuM ver husehld financial assets), the relative level f participatin (as measured by number f PPP hlders ver ppulatin) and the relative dynamic f each PPP (as captured by in-payments ver husehld savings). The fllwing prducts were identified as the five PPPs with the highest MPI: 3 Ranking Member State cded name 1 Germany Germany Riester 2 Spain Spain IPP 3 Belgium Belgium PP 4 Denmark Denmark RP 5 Austria Austria PZV All f the five PPPs with the highest market penetratin identified benefit frm a tax incentive n in-payments, with a limitatin n the amunt qualifying fr a tax incentive fr fur prducts ut f five frm 5 different Member States. Fr fur f the five prducts, ut-payments are taxed. Fr Austria_PZV, it depends n the decumulatin ptin. Decumulatin in the frm f annuities is a pssible ptin fr all the PPPs in the scpe f the study, but is mandatry fr nly ne prduct. Regarding the pssibility f early ut-payments and the tax regime applied, the regimes f all five prducts allw fr early ut-payment which is taxed in all cases, and taxed unfavurably in fur cases. Theretically, the switching f prvider within the same Member State is pssible fr these five prducts and des nt trigger any immediate tax impact at the time f the transfer. Switching t a prvider lcated in anther Member State is nt pssible fr tw f these prducts. Nevertheless, there culd be practical barriers against switching. The majrity f the PPPs with the highest MPI are subject t the same verall tax regime. Their key features are diverse. The main characteristic f PPPs with a higher MPI is a certain level f flexibility. 5

6 Practical implementatin aspects Study n the feasibility f a Eurpean Persnal Pensin Framewrk General methdlgy f phase 3 (interviews) and phase 4 (feasibility assessment) The final part f this study n the feasibility f a Eurpean initiative fr a pan-eurpean persnal pensin prduct deals with the fllwing aspects: - Cmpare the successful features identified in the curse f phase 2 with the stakehlders views (cnsumers, prviders and regulatrs) gathered during a wrkshp held in Brussels n 15 February 2017; - Establish a PEPP ID Card cvering a set f preferred features t be included in a pssible PEPP framewrk; - Assessment f the PEPP ID Card in relatin t the tax envirnment and; - Assessment f the market ptential. 6 6

7 Results f supply and demand side discussins in the cntext f a wrkshp The main purpse f the wrkshp was t exchange views and find cnsensus with a variety f stakehlders frm supply and demand perspectives n the pssible relevant features and verall architecture f the PEPP. The main results f the wrkshp can be summarised as fllws: Accumulatin phase: Study n the feasibility f a Eurpean Persnal Pensin Framewrk - In-payment characteristics: N mandatry minimum set at EU level but limits culd be set at prvider level Pssibility f changing the level f inpayments during the accumulatin phase State and emplyer subsidies allwed at (EU level) N maximum age limit fr the start f the accumulatin phase set at EU level - Investment strategy: Multiple investment ptins and a default investment ptin shuld be ffered t the cnsumer but these investment ptins shuld nt be defined at EU level Changes in investment strategy shuld be limited and carefully advised - Mitigatin f risk: Need t ensure cnsumer prtectin and cmpetitiveness with lcal prducts N full capital guarantee is needed N disability cverage Optinal death cverage - Early ut-payments: Early ut-payments shuld be allwed but limited Decumulatin phase: N harmnisatin Prviders: - The prvisin f PEPPs shuld be fully pen t asset managers, insurers and banking institutins - Current EU rules applicable t prviders shuld be sufficient Distributrs: - The distributin f PEPPs shuld be fully pen t all types f distributr - Online distributin shuld be allwed at EU level - Online distributin withut advice shuld be limited Prtability and switching: - Switching shuld be allwed at EU level - Switching shuld be subject t a mandatry minimum hlding perid - Switching shuld be subject t a cst-based, capped charge Advice and transparency: - Current EU rules shuld be used as a basis - Advice shuld be mandatry and free (payable nly when specific) - There is a need fr an EU infrmatin dcument (set f infrmatin determined at EU level) as well as lcal infrmatin dcuments 7

8 Study n the feasibility f a Eurpean Persnal Pensin Framewrk Results based n a technical assessment f the tax incentive regimes Based n the clustering perfrmed during phase 2 f ur study, a cmparisn between the PEPP features requested during the wrkshp and the current PPP features and their related tax incentives in the accumulatin phase, was perfrmed. This analysis was perfrmed n all features determined during phase 2. Fr cmparisn purpses, features relating t switching were discarded t assess the access f the PEPP t lcal tax incentives. Regarding switching pssibilities, sme PPP legislatins currently d nt allw the pensin saver t change prviders, r this peratin triggers taxatin. Hwever, switching shuld be cnsidered as an essential feature fr the success f the PEPP. This analysis identified a pssible need fr the adaptatin f the features relating t early ut-payments. Early utpayments shuld either nt be allwed, r allwed in limited situatins in rder fr the PEPP t give access t tax incentives in certain Member States. After the adaptatin f the abve feature, the analysis f the different Member States tax legislatins shws that the PEPP shuld theretically benefit frm tax incentives in 9 Member States and wuld benefit frm tax incentives in 14 additinal Member States if nly ne feature is adapted (legislatins where early ut-payments are allwed withut restrictin and legislatins where disability cverage is mandatry). Remarks Despite the high level f hetergeneity f PPP tax regimes acrss the EU, as highlighted by ur study and based n the results f the wrkshp cmpared t EY findings, a PEPP with accumulatin features harmnized at EU level in a flexible way and a decumulatin phase left up t Member States shuld be an efficient slutin t enable PEPP subscribers t benefit frm lcal PPP tax incentives. Our study did nt deal with the fllwing aspects, which will need t be discussed further in the curse f the design f a PEPP framewrk: - Authrisatin regulatins relating t prviders and distributrs f the PEPP, ntably regarding prtability aspects and the ptential need fr a prvider t adapt sme features t Member States requirements; - Infrmatin and investment strategy crrelated t a regulatin applicable t given types f prvider; - Switching regulatins, ntably in the cntext f different existing regulatins n prviders; Additinal issues emerged frm the study findings and need t be assessed further in the curse f the elabratin f a PEPP framewrk. 8

9 Study n the feasibility f a Eurpean Persnal Pensin Framewrk Market ptential assessment Our assessment suggests a market ptential estimated at EUR 0.7 trillin fr the 28 Member States. This estimate is within a range between EUR 0.4 and EUR 1 trillin. It assumes that the PEPP will replicate the market penetratin f the mst advanced PPP prducts in each Member State. It als assumes that the PEPP benefits frm the same favrable tax incentives as thse currently granted t ther PPPs in each Member State. 5 and 6 9

10 EV EN-N Study n the feasibility f a Eurpean Persnal Pensin Framewrk DOI: / ISBN: