LeX-Ray

Union households are amongst the highest savers in the world, but the bulk of those savings are held in bank accounts with short maturities. More investment into capital markets can help meet the challenges posed by population ageing and low interest rates.

Old age pensions constitute an essential part of a retiree’s income and for many people, adequate pension provision makes the difference between a comfortable old age and poverty. They are a precondition for exercising fundamental rights laid down in the Charter of Fundamental Rights of the European Union, including in Article 25 on the rights of the elderly which states: ‘The Union recognises and respects the rights of the elderly to lead a life of dignity and independence and to participate in social and cultural life’.

The Union is facing several challenges, including demographic challenges because of the fact that Europe is an ageing continent. In addition, career patterns, the labour market and the distribution of wealth are undergoing radical changes, not least as a result of the digital revolution.

A substantial part of old age pensions is provided under public schemes. Notwithstanding the exclusive national competence regarding the organisation of pension systems as determined by the Treaties, income adequacy and financial sustainability of national pension systems are crucial to the stability of the Union as a whole. By channelling more of Europeans’ savings from cash and bank deposits to long-term investment products, such as voluntary pension products with a long-term retirement nature, the impact would therefore be beneficial both for individuals (who would benefit from higher returns and improved pension adequacy) and for the broader economy.

In 2015, 11,3 million Union citizens of working age (20 to 64 years old) were residing in a Member State other than the Member State of their citizenship and 1,3 million Union citizens were working in a Member State other than their Member State of residence.

A portable pan-European Personal Pension Product (PEPP) with a long-term retirement nature will increase its attractiveness as a product, particularly to young people and mobile workers, and will help to further facilitate the right of Union citizens to live and work across the Union.

Personal pensions are important in linking long-term savers with long-term investment opportunities. A larger, European market for personal pensions will support the supply of funds for institutional investors and investment into the real economy.

This Regulation enables the creation of a personal pension product which will have a long-term retirement nature and will take into account environmental, social and governance (ESG) factors as referred to in the United Nations-supported Principles for Responsible Investment, insofar as possible, will be simple, safe, reasonably-priced, transparent, consumer-friendly and portable Union-wide and complements the existing systems in the Member States.

Currently, the internal market for personal pension products does not function smoothly. In some Member States there is not yet a market for personal pension products. In others, personal pension products are available, but there is a high degree of fragmentation between national markets. As a result, personal pension products have only a limited degree of portability. This can result in difficulties for individuals to make use of their basic freedoms. For instance, they might be prevented from taking up a job or retiring in another Member State. In addition, the possibility for providers to use the freedom of establishment and the freedom to provide services is hampered by the lack of standardisation of existing personal pension products.

As the internal market for personal pension products is fragmented and diverse, the impact of PEPPs might be very different across Member States, and the target audience might be equally varied. In some Member States, PEPPs might offer solutions for people who do not currently have access to adequate provisions. In other Member States, PEPPs could broaden the consumer choice, or offer solutions to mobile citizens. However, PEPPs should not aim at replacing existing national pension systems, since it is an additional and complementary personal pension product.

The capital markets union (CMU) will help mobilise capital in Europe and channel it to all companies, including small and medium enterprises, infrastructure and long-term sustainable projects that need it to expand and create jobs. One of the main objectives of the CMU is to increase investment and choices for retail investors by putting European savings to better use. For this purpose, a PEPP will represent a step forward for the enhancement of the capital markets integration due to its support to the long-term financing of the real economy taking into account the long-term retirement nature of the product and the sustainability of investments.

As announced in the Commission’s Action Plan on building a CMU of 30 September 2015, ‘the Commission will assess the case for a policy framework to establish a successful European market for simple, efficient and competitive personal pensions, and determine whether EU legislation is required to underpin this market’.

In the resolution of the European Parliament of 19 January 2016 on stocktaking and challenges of the EU Financial Services Regulation: impact and the way forward towards a more efficient and effective EU framework for Financial Regulation and a Capital Markets Union ( 3 ) , the European Parliament stressed that ‘an environment must be fostered that stimulates financial product innovation, creating more diversity and benefits for the real economy and providing enhanced incentives for investments, and that may also contribute to the delivery of adequate, safe and sustainable pensions, such as, for example, the development of a pan-European Pension Product (PEPP), with a simple transparent design’.

In its conclusions of 28 June 2016, the European Council called for ‘swift and determined progress to ensure easier access to finance for business and to support investment in the real economy by moving forward with the Capital Markets Union agenda’.

In the Communication of the Commission of 14 September 2016 Capital Markets Union — Accelerating Reform, the Commission announced that it ‘will consider proposals for a simple, efficient and competitive EU personal pension product […] Options under consideration include a possible legislative proposal which could be tabled in 2017’.

In the Communication of the Commission of 8 June 2017 Mid-Term Review of the Capital Markets Union Action Plan, the Commission announced ‘a legislative proposal on a pan-European Personal Pension Product (PEPP) by end June 2017. This will lay the foundations for a safer, more cost-efficient and transparent market in affordable and voluntary personal pension savings that can be managed on a pan-European scale. It will meet the needs of people wishing to enhance the adequacy of their retirement savings, address the demographical challenge, complement the existing pension products and schemes, and support the cost-efficiency of personal pensions by offering good opportunities for long-term investment of pension savings’.

The development of a PEPP will contribute to increasing choices for retirement saving, especially for mobile workers, and establish a Union market for PEPP providers. It should, however, only be complementary to public pension systems.

Financial education can support the understanding and awareness of households’ saving choices in the area of voluntary personal pension products. Savers should also have a fair chance to fully grasp the risks and the features related to a PEPP.

A legislative framework for a PEPP will lay the foundations for a successful market in affordable and voluntary retirement-related investments that can be managed on a pan-European scale. By complementing the existing statutory and occupational pension schemes and products, it will contribute to meeting the needs of people wishing to enhance the adequacy of their retirement savings, addressing the demographic challenge and providing a powerful new source of private capital for long-term investment. This framework will not replace or harmonise existing national personal pension products or schemes, nor will it affect existing national statutory and occupational pension schemes and products.

A PEPP is an individual non-occupational pension product subscribed to voluntarily by a PEPP saver in view of retirement. Because a PEPP should provide for long-term capital accumulation, possibilities for the early withdrawal of capital should be limited and might be penalised.

This Regulation harmonises a set of core features for the PEPP, which concern key elements such as distribution, minimum content of contracts, investment policy, provider switching, or cross-border provision and portability. The harmonisation of those core features will improve the level playing field for personal pension providers at large and help boost the completion of the CMU and the integration of the internal market for personal pensions. It will lead to the creation of a largely standardised pan-European product, available in all Member States, empowering consumers to make full use of the internal market by transferring their pension rights abroad and offering a broader choice between different types of providers, including in a cross-border way. As a result of fewer barriers to the provision of pension services across borders, a PEPP will increase competition between providers on a pan-European basis and create economies of scale that should benefit savers.

Article 114 of the Treaty on the Functioning of the European Union ( TFEU ) allows the adoption of acts both in the shape of regulations or directives. The adoption of a regulation has been preferred as it would become directly applicable in all Member States. Therefore, a regulation would allow a quicker uptake of the PEPP and contribute more rapidly to address the need for more pension savings and investments in the CMU context. This Regulation is harmonising the core features of PEPPs which do not have to be subject to specific national rules and so, a regulation appears better suited than a directive in this case. On the contrary, the features which are outside the scope of this Regulation (e.g. accumulation phase conditions) are subject to national rules.

This Regulation should lay down uniform rules on the registration, provision, distribution and supervision of PEPPs. PEPPs should be subject to the provisions in this Regulation, relevant sectorial Union law as well as the corresponding delegated and implementing acts. In addition, the laws adopted by Member States in implementation of sectorial Union law should apply. If not already covered by this Regulation or by sectorial Union law, the respective laws of Member States should apply. A PEPP should also be subject to a contract concluded between the PEPP saver and the PEPP provider (the ‘PEPP contract’). There is a set of key characteristics of the product that should be included in the PEPP contract. This Regulation should be without prejudice to the Union rules on private international law, in particular rules related to court jurisdiction and applicable law. This Regulation should also be without prejudice to national contractual, social, labour and tax law.

This Regulation should make clear that the PEPP contract has to comply with all applicable rules. Moreover, the PEPP contract should set the rights and obligations of the parties and include a set of key characteristics of the product. A PEPP contract might also be concluded by the representative of a group of PEPP savers, such as an independent savers association, acting on behalf of that group provided that this is done in compliance with this Regulation and applicable national law and that PEPP savers subscribing in this way obtain the same information and advice as PEPP savers concluding a PEPP contract either directly with a PEPP provider or through a PEPP distributor.

PEPP providers should have access to the whole Union market with one single product registration to be granted on the basis of a single set of rules. In order to market a product under the designation ‘PEPP’, applicant PEPP providers should apply for registration to their competent authorities. This Regulation does not prevent registration of an existing personal pension product which fulfils the conditions laid down by this Regulation. Competent authorities should take a decision for registration if the applicant PEPP provider has provided all the necessary information and if suitable arrangements to comply with the requirements of this Regulation are in place. After a decision for registration has been taken by the competent authorities, they should notify the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA) established by Regulation 2010/1094 of the European Parliament and of the Council ( 4 ) accordingly to register the PEPP provider and the PEPP in the central public register. Such registration should be valid across the entire Union. In order to ensure effective supervision of compliance with the uniform requirements laid down in this Regulation, any subsequent modifications to the information and documents provided in the registration procedure should be immediately notified to the competent authorities and to EIOPA, where applicable.

A central public register should be created by EIOPA to contain information about PEPPs that have been registered and could be provided and distributed in the Union, as well as about the PEPP providers and a list of Member States in which the PEPP is offered. Where PEPP providers are not distributing PEPPs within the territory of a Member State but are able to open a sub-account for that Member State in order to ensure the portability for their PEPP customers, that register should also contain information about the Member States for which the PEPP provider offers sub-accounts.

The way in which institutions for occupational retirement provision (IORPs), as referred to in Directive 2016/2341 of the European Parliament and of the Council ( 5 ) , are organised and regulated varies significantly between Member States. In some Member States, those institutions are only allowed to carry out occupational pension activities whereas in other Member States, those institutions, including the authorised entities responsible for operating them and acting on their behalf, where IORPs do not have legal personality, are allowed to carry out occupational and personal pension activities. This has not only lead to different organisational structures of IORPs but is also accompanied by different supervision on national level. In particular, prudential supervision of IORPs which are authorised to provide occupational and personal pension activities is broader than of those IORPs which only carry out occupational pension activities. In order not to jeopardise financial stability and to take into account the different organisational structure and supervision, only those IORPs which are also authorised and supervised to provide personal pension products pursuant to national law should be allowed to provide PEPPs. Moreover and to further safeguard financial stability, all assets and liabilities corresponding to the PEPP provision business should be ring-fenced, without any possibility to transfer them to the other retirement provision business of the institution. IORPs that provide PEPPs should also at all times comply with the relevant standards set by Directive 2016/2341, including the more detailed investment rules laid down by the Member States where they are registered or authorised in accordance with Directive 2016/2341 when transposing that Directive, and the provisions of their system of governance. As with other PEPP providers, when this Regulation lays down more stringent provisions, such provisions should apply.

The single PEPP passport will ensure the creation of an internal market for PEPP.

PEPP providers should be able to distribute PEPPs that they have manufactured and PEPPs that they have not manufactured provided that this would be in compliance with the relevant sectorial law. PEPP distributors should be entitled to distribute PEPPs which they have not manufactured. PEPP distributors should distribute only those products for which they have the appropriate knowledge and competence in accordance with the relevant sectorial law.

Advice should be given to prospective PEPP savers by PEPP providers or PEPP distributors prior to the conclusion of the PEPP contract taking into account the long-term retirement nature of the product, the individual demands and needs of the PEPP saver and the limited redeemability. Advice should particularly aim at informing a PEPP saver about the features of the investment options, the level of capital protection and the forms of out-payments.

Under the freedom to provide services or the freedom of establishment, PEPP providers can provide PEPPs and PEPP distributors can distribute PEPPs within the territory of a host Member State after opening of a sub-account for that host Member State. In order to ensure a high quality of service and effective consumer protection, home and host Member States should closely cooperate in the enforcement of the obligations set out in this Regulation. Where PEPP providers and PEPP distributors pursue business in different Member States under the freedom to provide services, the competent authorities of the home Member State should be responsible for ensuring compliance with the obligations set out in this Regulation, because of their closer links with the PEPP provider. In order to ensure fair sharing of responsibilities between the competent authorities from the home and the host Member States, if the competent authorities of a host Member State become aware of any infringement of obligations occurring within their territory, they should inform the competent authorities of the home Member State which should then be obliged to take the appropriate measures. Moreover, the competent authorities of the host Member State should be entitled to intervene if the competent authorities of the home Member State fail to take appropriate measures or if the measures taken are insufficient.

The competent authorities of the Member States should have at their disposal all means necessary to ensure the orderly pursuit of business by PEPP providers and PEPP distributors throughout the Union, whether pursued in accordance with the freedom of establishment or the freedom to provide services. In order to ensure the effectiveness of supervision, all actions taken by the competent authorities should be proportionate to the nature, scale and complexity of the risks inherent in the business of a particular provider or distributor.

The pan-European dimension of the PEPP can be developed not only at the level of the provider, through the possibilities for its cross-border activity, but also at the level of the PEPP saver, through the portability of the PEPP and the switching service, thereby contributing to the safeguarding of personal pension rights of persons exercising their right to free movement under Articles 21 and 45 TFEU. Portability involves the PEPP saver changing residence to another Member State without changing PEPP providers, whereas the switching of PEPP providers does not necessarily involve a change of residence.

A PEPP should comprise national sub-accounts, each of them accommodating personal pension product features allowing that contributions to the PEPP or out-payments qualify for incentives if available in the Member States in relation to which a sub-account is made available by the PEPP provider. The sub-account should be used to keep a record of the contributions made during the accumulation phase and the out-payments made during the decumulation phase in compliance with the law of the Member State for which the sub-account has been opened. At the level of the PEPP saver, a first sub-account should be created upon the conclusion of a PEPP contract.

In order to allow a smooth transition for PEPP providers, the obligation to provide PEPPs comprising sub-accounts for at least two Member States should apply within three years of the date of application of this Regulation. Upon launching a PEPP, the PEPP provider should provide information on which sub-accounts are immediately available, in order to avoid a possible misleading of PEPP savers. If a PEPP saver moves to another Member State and if no sub-account for that Member State is available, the PEPP provider should make it possible for the PEPP saver to switch without delay and free of charge to another PEPP provider which provides a sub-account for that Member State. The PEPP saver could also continue to contribute to the sub-account where contributions were made before changing residence.

Taking into account the long-term retirement nature of the PEPP and the administrative burden involved, PEPP providers and PEPP distributors should provide clear, easy to understand, and adequate information to prospective PEPP savers and PEPP beneficiaries to support their decision-making about their retirement. For the same reason, PEPP providers and PEPP distributors should equally ensure a high level of transparency throughout the various phases of a PEPP including the pre-contractual stage, the conclusion of the contract, the accumulation phase (including pre-retirement) and the decumulation phase. In particular, information concerning accrued retirement entitlements, projected levels of PEPP retirement benefits, risks and guarantees, the integration of ESG factors and costs should be given. Where projected levels of PEPP retirement benefits are based on economic scenarios, that information should also include a best-estimate scenario and an unfavourable scenario, which should be extreme but realistic.

Before concluding a PEPP contract, prospective PEPP savers should be given all the necessary information to make an informed choice. Prior to the conclusion of the PEPP contract, retirement-related demands and needs should be specified and advice should be provided.

In order to ensure optimal product transparency, PEPP providers should draw up a PEPP key information document (PEPP KID) for the PEPPs that they manufacture before those PEPPs can be distributed to PEPP savers. They should also be responsible for the accuracy of the PEPP KID. The PEPP KID should replace and adapt the key information document for packaged retail and insurance-based investment products under Regulation 2014/1286 of the European Parliament and of the Council ( 6 ) which, as a consequence, would not have to be provided for PEPPs. A stand-alone PEPP KID should be drawn up for the Basic PEPP. Where the PEPP provider offers alternative investment options, a generic KID for the alternative investment options which could also contain references to other documents should also be provided. Alternatively, where the information required on the alternative investment options cannot be provided within a single stand-alone KID, a stand-alone KID for every alternative investment option should be provided. However, this should only be the case if the provision of a generic KID for the alternative investment options would not be in the interest of PEPP customers. Therefore, when the competent authorities assess the compliance of the PEPP KID with this Regulation, they should ensure optimal comparability of different investment options, if applicable, taking into account in particular up-to-date knowledge of behavioural analysis to avoid any cognitive bias caused by the presentation of the information.

In order to ensure widespread dissemination and availability of PEPP KIDs, this Regulation should provide for the publication by the PEPP provider of the PEPP KIDs on its website. The PEPP provider should publish the PEPP KID for each Member State where the PEPP is distributed under the freedom to provide services or the freedom of establishment containing the specific information for the conditions related to the accumulation phase and to the decumulation phase for that Member State.

Personal pension product calculators are already being developed at national level. However, in order for the calculators to be as useful as possible to consumers, they should cover the costs and fees charged by various PEPP providers, together with any further costs or fees charged by intermediaries or other parts of the investment chain not already included by the PEPP providers.

The details of the information to be included in the PEPP KID and the presentation of this information should be further harmonised through regulatory technical standards taking into account existing and ongoing research into consumer behaviour, including results from testing the effectiveness of different ways of presenting information with consumers. The Commission should be empowered to adopt regulatory technical standards. The draft regulatory technical standards should be developed by EIOPA after consulting the other European supervisory authorities (ESAs) — the European Supervisory Authority (European Banking Authority) (EBA) established by ESAEBAR of the European Parliament and of the Council ( 7 ) and the European Supervisory Authority (the European Securities and Markets Authority) (ESMA) established by ESAESMAR of the European Parliament and of the Council ( 8 ) where applicable as well as with the European Central Bank, competent authorities and after consumer and industry testing as provided for in this Regulation, specifying the details and presentation of the information to be included in the PEPP KID; the conditions under which the PEPP KID should be reviewed and revised; the conditions for fulfilling the requirement to provide the PEPP KID; the rules to determine the assumptions on pension benefit projections; the details of the presentation of the information to be contained in the PEPP Benefit Statement; and the minimum criteria that the risk-mitigation techniques have to satisfy. When developing the draft regulatory technical standards, EIOPA should take into account the various possible types of PEPPs, the long-term nature of PEPPs, the capabilities of PEPP savers, and the features of PEPPs. Before submitting the draft regulatory technical standards to the Commission, consumer testing and industry testing with real data should take place where applicable. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation 2010/1094. The Commission should also be empowered to adopt implementing technical standards developed by EIOPA regarding the details for cooperation and the exchange of information together with the requirements needed to present that information in a standardised format allowing for comparison and, after consulting the other ESAs and the competent authorities and after industry testing, regarding the format of supervisory reporting by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation 2010/1094.

The PEPP KID should be clearly distinguishable and separate from any marketing material.

PEPP providers should draw up a PEPP benefit statement addressed to PEPP savers, in order to present them with key personal and generic data about the PEPP and to ensure up-to-date information on it. The PEPP benefit statement should be clear and comprehensive and should contain relevant and appropriate information to facilitate the understanding of pension entitlements over time and across pension products and serve labour mobility. The PEPP benefit statement should also contain key information on the investment policy relating to ESG factors and should indicate where and how PEPP savers can obtain supplementary information on the integration of ESG factors. The PEPP benefit statement should be provided annually to PEPP savers.

PEPP providers should inform PEPP savers two months before the dates on which PEPP savers have the possibility to modify their pay-out options about the upcoming start of the decumulation phase, the possible forms of out-payments and the possibility to modify the form of out-payments. Where more than one sub-account has been opened, PEPP savers should be informed about the possible start of the decumulation phase of each sub-account.

During the decumulation phase, PEPP beneficiaries should continue to receive information on their PEPP benefits and corresponding pay-out options. This is particularly important when a significant level of investment risk is borne by PEPP beneficiaries in the pay-out phase.

In order to adequately protect the rights of PEPP savers and PEPP beneficiaries, PEPP providers should be able to opt for an asset allocation that suits the precise nature and duration of their liabilities, including those having a long-term horizon. Therefore, efficient supervision is required as well as an approach to investment rules that allows PEPP providers sufficient flexibility to decide on the most secure and efficient investment policy, while obliging them to act prudently and in the best long-term interests of PEPP savers as a whole. Compliance with the prudent person rule therefore requires an investment policy geared to the customers’ structure of the PEPP provider.

By setting the prudent person rule as the underlying principle for capital investment and making it possible for PEPP providers to operate across borders, the redirection of savings into the sector of personal retirement provision is encouraged, thereby contributing to economic and social progress. The prudent person rule should also take into explicit consideration the role played by ESG factors in the investment process.

This Regulation should ensure an appropriate level of investment freedom for PEPP providers. As very long-term investors with low liquidity risks, PEPP providers are in a position to contribute to the development of the CMU by investing in non-liquid assets such as shares and in other instruments that have a long-term economic profile and are not traded on regulated markets, multilateral trading facilities (MTFs) or organised trading facilities (OTFs) within prudent limits. They can also benefit from the advantages of international diversification. Investments in shares in currencies other than those of the liabilities and in other instruments that have a long-term economic profile and are not traded on regulated markets, MTFs or OTFs should therefore not be restricted, in line with the prudent person rule so as to protect the interest of PEPP savers and PEPP beneficiaries, except on prudential grounds.

In the context of deepening the CMU, the understanding of what constitutes instruments with a long-term economic profile is broad. Such instruments are non-transferable securities and therefore do not have access to the liquidity of secondary markets. They often require fixed term commitments which restrict their marketability and should be understood to include participation and debt instruments in, and loans provided to, non-listed undertakings. Non-listed undertakings include infrastructure projects, unlisted companies seeking growth, real estate or other assets that could be suitable for long-term investment purposes. Low-carbon and climate-resilient infrastructure projects are often non-listed assets and rely on long-term credits for project financing. Considering the long-term nature of their liabilities, PEPP providers are encouraged to allocate a sufficient part of their asset portfolio to sustainable investments in the real economy with long-term economic benefits, in particular to infrastructure projects and corporates.

ESG factors are important for the investment policy and risk management systems of PEPP providers. PEPP providers should be encouraged to consider such factors in investment decisions and to take into account how they form part of their risk management system in order to avoid ‘stranded assets’. The information on ESG factors should be available to EIOPA, to the competent authorities and to PEPP savers.

One of the objectives of regulating PEPPs is to create a safe, cost-friendly long-term retirement savings product. Because the investments concerning personal pension products are long-term, special regard should be given to the long-term consequences of asset allocation. In particular, ESG factors should be taken into account. PEPP savings should be invested taking into account ESG factors such as those set out in the Union’s climate and sustainability objectives as set out in the Paris Agreement on Climate Change (Paris Agreement), the United Nations Sustainable Development Goals, and the United Nations Guiding Principles on Business and Human Rights.

In ensuring compliance with their obligation to develop an investment policy in accordance with the prudent person rule, PEPP providers should be prevented from investing in non-cooperative jurisdictions identified in the applicable Council’s conclusions on the list of non-cooperative jurisdictions for tax purposes, nor in a high-risk third country with strategic deficiencies identified by the applicable Commission Delegated Regulation adopted on the basis of Article 9 of Directive 2015/849 of the European Parliament and of the Council ( 9 ) .

In view of the long-term retirement objective of the PEPP, the investment options granted to the PEPP savers should be framed, covering the elements which allow investors to make an investment decision, including the number of investment options they can choose from. After the initial choice made upon the subscription of a PEPP, the PEPP saver should have the possibility to modify that choice after a minimum of five years from the subscription of a PEPP or in case of subsequent modification, from the most recent modification of the investment option, so that sufficient stability is offered to providers for their long-term investment strategy whilst at the same time investor protection is ensured. However, it should be possible for PEPP providers to allow PEPP savers to modify the chosen investment option more frequently.

The Basic PEPP should be a safe product and should act as a default investment option. It could take the form of either a risk-mitigation technique consistent with the objective of allowing the PEPP saver to recoup the capital, or a guarantee on the capital invested. A risk-mitigation technique consistent with the objective to allow the PEPP saver to recoup the capital could be a conservative investment strategy or a life-cycle strategy which progressively reduces the overall risk exposure over time. Guarantees provided under the default investment option should at least cover the contributions during the accumulation phase after deduction of all fees and charges. Guarantees could also cover the fees and charges and could provide for full or partial coverage of inflation. A guarantee on the capital invested should be due at the start of the decumulation phase and during the decumulation phase, where applicable.

In order to guarantee PEPP savers cost-efficiency and a sufficient performance, the costs and fees for the Basic PEPP should be limited to a fixed percentage of the accumulated capital. While that limit should be fixed at 1 % of the accumulated capital, it would be appropriate to further specify the types of costs and fees to be taken into account by regulatory technical standards, in order to ensure a level playing field between different PEPP providers and different types of PEPPs with their particular cost and fee structures. The Commission should be empowered to adopt such regulatory technical standards which should be developed by EIOPA. In drawing up the draft regulatory technical standards, EIOPA should, in particular, consider the long-term nature of the PEPP, the different types of PEPPs and the cost-relevant factors linked to their specific features, so as to ensure a fair and equal treatment of the different PEPP providers and their products while taking into account the character of the Basic PEPP as a simple, cost-efficient and transparent product providing a sufficient long-term real investment return. Moreover, with the aim of preserving the long-term retirement nature of the product, the form of out-payments, in particular with respect to lifelong annuities, should be carefully assessed. Within that framework, in order to ensure that PEPP providers offering a capital guarantee benefit of a level playing field with other providers, EIOPA should duly take into account the structure of costs and fees. Furthermore, the percentage values for costs and fees should be regularly revised in order to ensure their continued adequacy taking into account any changes in the level of costs. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation 2010/1094. In order to ensure continued cost-efficiency and to protect PEPP customers from overly burdensome cost structures, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of amending the percentage value, taking into account its reviews, in particular the actual level and changes in the actual level of costs and fees and the impact of the cost cap on the availability of PEPPs, and appropriate market access of different PEPP providers providing different types of PEPPs.

The competent authorities should exercise their powers having as their prime objectives the protection of the rights of PEPP savers and PEPP beneficiaries and the stability and soundness of PEPP providers.

Where the PEPP provider is an IORP or an EU Alternative Investment Fund Manager (EU AIFM), it should appoint a depositary in relation to the safekeeping of the assets corresponding to the PEPP provision business. Additional safeguards are needed in relation to the entity acting as a depositary and its functions as currently the rules set out in relation to the depositary in AIFMD of the European Parliament and of the Council ( 10 ) are targeted to funds marketed only to professional investors, with the exception of European long-term investment funds under ELTIFR of the European Parliament and of the Council ( 11 ) , marketed to retail investors, and the sectorial law applicable to IORPs does not require appointment of a depositary in all cases. In order to ensure the highest level of investor protection in relation to the safekeeping of assets corresponding to the PEPP provision business, this Regulation requires IORPs and EU AIFM providing PEPP to follow the rules of UCITS of the European Parliament and of the Council ( 12 ) as regards the appointment of the depositary, the execution of its tasks and its oversight duties.

Transparency and fairness of costs and fees is essential to develop PEPP savers’ trust and allow them to make informed choices. Accordingly, the use of non-transparent pricing methods should be prohibited.

In order to fulfil the objectives set out in this Regulation, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of specifying the conditions for the exercise of intervention powers by EIOPA and the competent authorities and the criteria and factors to be applied by EIOPA to determine when there is a significant PEPP saver protection concern. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making ( 13 ) . In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

Without prejudice to the right of PEPP customers to bring action in the courts, easily accessible, adequate, independent, impartial, transparent and effective alternative dispute resolution (ADR) procedures should be established between PEPP providers or PEPP distributors and PEPP customers for resolving disputes arising from the rights and obligations set out in this Regulation.

With a view to establishing an efficient and effective dispute resolution procedure, PEPP providers and PEPP distributors should put in place an effective complaints procedure that can be followed by their customers before the dispute is referred to be resolved in an ADR procedure or before a court. The complaints procedure should contain short and clearly defined timeframes within which the PEPP provider or PEPP distributor should reply to a complaint. ADR bodies should have sufficient capacity to engage in an adequate and efficient way in cross-border cooperation with regard to disputes concerning rights and obligations pursuant to this Regulation.

In order to find better conditions for their investments, thus also stimulating the competition among PEPP providers, PEPP savers should have the right to switch to a different PEPP provider located in the same or another Member State during the accumulation phase, through a clear, quick and safe procedure. However, PEPP providers should not be obliged to provide the switching service for PEPPs, where savers are receiving out-payments in the form of lifetime annuities. During switching, transferring PEPP providers should transfer the corresponding amounts or, where applicable, assets-in-kind from the PEPP account and close it. PEPP savers should conclude contracts with receiving PEPP providers for the opening of a new PEPP account. The new PEPP account should have the same sub-account structure as the former PEPP account.

During the switching service, PEPP savers can choose to transfer assets-in-kind only when the switching is between PEPP providers, such as investment firms or other eligible providers holding an additional licence, engaged in portfolio management for PEPP savers. Written consent of the receiving provider is needed in that case. In the case of collective investment management, the switching of assets-in-kind is not possible as there is no separation of assets for every PEPP saver.

The switching process should be straightforward for the PEPP saver. Accordingly, the receiving PEPP provider should be responsible for initiating and managing the process on behalf of the PEPP saver and upon his request. PEPP providers should be able to use additional means, such as a technical solution, on a voluntary basis when establishing the switching service. Considering the pan-European nature of the product, PEPP savers should be able to switch without delay and free of charge when no sub-account is available in the Member State the PEPP saver moves to.

Before giving the authorisation for switching, the PEPP saver should be informed of all the steps of the procedure and costs necessary to complete the switching, in order to enable the PEPP saver to make an informed decision about the switching service.

The cooperation of the transferring PEPP provider is necessary in order for the switching to be successful. Therefore, the receiving PEPP provider should be provided by the transferring PEPP provider with all the information necessary to reinstate the payments on the other PEPP account. However, such information should not exceed what is necessary in order to carry out the switching.

PEPP savers should not be subject to financial losses, including charges and interest, caused by any mistakes made by either of the PEPP providers involved in the switching process. In particular, PEPP savers should not bear any financial loss deriving from the payment of additional fees, interest or other charges as well as fines, penalties or any other type of financial detriment due to delay in the execution of the switching. As capital protection should be ensured at the start of the decumulation phase and during the decumulation phase, where applicable, the transferring PEPP provider should not be obliged to ensure the capital protection or guarantee at the moment of switching. The PEPP provider might also decide to ensure the capital protection or provide the guarantee at the moment of switching.

PEPP savers should have the possibility to make an informed decision before switching. The receiving PEPP provider should comply with all the distribution and information requirements, including the provision of a PEPP KID, advice and adequate information regarding the costs related to the switching and the possible negative implications on the capital protection when a PEPP with a guarantee is being switched. Costs for the switching applied by the transferring PEPP provider should be kept to an amount that does not constitute an obstacle to mobility and in any case, be limited to 0,5 % of the corresponding amounts or monetary value of the assets-in-kind to be transferred.

PEPP savers should be given the freedom to decide upon subscription of a PEPP and when opening a new sub-account about their pay-out choice (annuities, lump sum, or other) in the decumulation phase, but with a possibility to revise their choice one year before the start of the decumulation phase, at the start of the decumulation phase and at the moment of switching, in order to be able to best adapt their pay-out choice to their needs when they near retirement. If the PEPP provider makes available more than one form of out-payments, it should be possible for the PEPP saver to opt for a different pay-out choice for each sub-account opened in his PEPP account.

PEPP providers should be allowed to make available to PEPP savers a wide range of forms of out-payments. That approach would achieve the goal of enhanced take-up of the PEPP through increased flexibility and choice for PEPP savers. It would allow providers to design their PEPPs in the most cost-effective way. It is coherent with other Union policies and politically feasible, as it preserves enough flexibility for Member States to decide about which forms of out-payments they wish to encourage. In line with the long-term retirement nature of the product, it should be possible for Member States to adopt measures to privilege particular forms of out-payments such as quantitative limits for lump sum payments to further encourage lifelong annuities and drawdown payments.

In view of the pan-European character of the PEPP, there is a need to ensure a consistent high level of PEPP saver protection throughout the internal market. This requires adequate tools to effectively combat infringements and prevent consumer detriment. Therefore, the powers of EIOPA and the competent authorities should be complemented by an explicit mechanism for prohibiting or restricting the marketing, distribution or sale of any PEPP giving rise to serious concerns regarding PEPP saver protection, including with respect to the long-term retirement nature of the product, the orderly functioning and integrity of financial markets, or the stability of the whole or part of the financial system, together with appropriate coordination and contingency powers for EIOPA. The powers of EIOPA should be based on Article 9(5) of Regulation 2010/1094 so as to ensure that such mechanisms for intervention can be applied in the case of significant PEPP saver protection concerns, including with respect to the particular long-term retirement nature of the PEPP. Where the conditions are met, the competent authorities should be able to impose a prohibition or restriction on a precautionary basis before a PEPP has been marketed, distributed or sold to PEPP savers. Those powers do not relieve the PEPP provider of its responsibility to comply with all the relevant requirements under this Regulation.

Full transparency on costs and fees related to the investment in a PEPP should be guaranteed. A level-playing field between providers would be established, whilst ensuring consumer protection. Comparative information would be available between different products, thus incentivising competitive pricing.

Although the ongoing supervision of PEPP providers is to be exercised by the respective competent authorities, EIOPA should coordinate the supervision with regards to PEPPs, in order to guarantee the consistent application of a unified supervisory methodology, contributing in that way to the pan-European and long-term retirement nature of PEPPs.

In order to strengthen consumer rights and to facilitate access to a complaints procedure, PEPP savers should be able, either individually or collectively, to submit complaints to the competent authorities of their Member State of residence, regardless of where the infringement occurred.

EIOPA should cooperate with competent authorities and facilitate cooperation and consistency between them. In this respect, EIOPA should play a role in the power of competent authorities to apply supervisory measures by providing evidence about PEPP-related infringements. EIOPA should also provide binding mediation in the event of disagreement between competent authorities in cross-border situations.

In order to ensure compliance with this Regulation by PEPP providers and PEPP distributers and to ensure that they are subject to similar treatment across the Union, administrative penalties and other measures which are effective, proportionate and dissuasive should be provided.

In line with the Communication of the Commission of 8 December 2010‘Reinforcing sanctioning regimes in the financial services sector’ and in order to ensure that the requirements of this Regulation are fulfilled, it is important that Member States take necessary steps to ensure that infringements of this Regulation are subject to appropriate administrative penalties and other measures.

Although Member States can lay down rules for administrative and criminal penalties for the same infringements, Member States should not be required to lay down rules for administrative penalties for infringements of this Regulation which are subject to national criminal law. However, the maintenance of criminal penalties instead of administrative penalties for infringements of this Regulation should not reduce or otherwise affect the ability of competent authorities to cooperate, access and exchange information in a timely way with competent authorities in other Member States for the purposes of this Regulation, including after any referral of the relevant infringements to the competent judicial authorities for criminal prosecution.

Competent authorities should be empowered to impose pecuniary penalties which are sufficiently high to offset the actual or potential profits, and to be dissuasive even for larger financial undertakings and their managers.

In order to ensure a consistent application of penalties across the Union, the competent authorities should take into account all relevant circumstances when determining the type of administrative penalty or other measures and the level of pecuniary penalties.

In order to ensure that decisions on infringements and penalties by competent authorities have a dissuasive effect on the public at large and to strengthen consumer protection by warning them about PEPPs distributed in infringement of this Regulation, those decisions should be published unless such disclosure jeopardises the stability of financial markets or an ongoing investigation.

In order to detect potential infringements, the competent authorities should have the necessary investigatory powers, and should establish effective mechanisms, to enable reporting of potential or actual infringements.

This Regulation should be without prejudice to any provisions in the laws of Member States in respect of criminal offences.

Any processing of personal data carried out within the framework of this Regulation, such as the exchange or transmission of personal data by the competent authorities or the processing of personal data by PEPP providers or PEPP distributors, should be undertaken in accordance with GDPR of the European Parliament and of the Council ( 14 ) and PECD of the European Parliament and of the Council ( 15 ) . Any exchange or transmission of information by the ESAs should be undertaken in accordance with Regulation 2018/1725 of the European Parliament and of the Council ( 16 ) .

Given the sensitivity of personal financial data, strong data protection is of the utmost importance. Therefore it is recommended that data protection authorities are closely involved in the implementation and supervision of this Regulation.

The registration and notification procedure laid down in this Regulation should not replace any additional national procedure in place to have the possibility to benefit from the advantages and incentives fixed at national level.

An evaluation of this Regulation is to be carried out, inter alia, by assessing market developments, such as the emergence of new types of PEPPs, as well as developments in other areas of Union law and the experiences of Member States. Such an evaluation should take account of the different aims and purposes of establishing a well- functioning PEPP-market, and in particular should evaluate whether this Regulation has resulted in more European citizens saving for sustainable and adequate pensions. The importance of minimum European standards for the supervision of PEPP providers also requires the evaluation of the PEPP providers in terms of compliance with this Regulation and the applicable sectorial law.

Given the possible long-term implications of this Regulation, it is essential to closely monitor developments during the initial phase of application. When carrying out the evaluation the Commission should also reflect the experiences of EIOPA, stakeholders and experts, and report to the European Parliament and to the Council any observations it might have.

This Regulation should ensure respect for fundamental rights and observe the principles recognised in particular by the Charter of the Fundamental Rights of the European Union, in particular the rights of the elderly to lead a life of dignity and independence and to participate in social and cultural life, the right to the protection of personal data, the right to property, the freedom to conduct a business, the principle of equality between men and women and the principle of a high level of consumer protection.

Since the objectives of this Regulation, namely to enhance PEPP saver protection and improve PEPP saver confidence in PEPPs, including where those products are distributed cross-border, cannot be sufficiently achieved by the Member States but can rather, by reason of its effects, be better achieved at Union level the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives,