Euro Pension Plans Could Disrupt QROPS Market

The European Qualifying Recognised Overseas Pension Scheme (QROPS) market may come under threat from new plans to introduce an international pension for the European Union.

The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation document on setting up a standard European Personal Pension Product to be called a PEPP.

The aim is to encourage EU citizens who move between member states to save for retirement into a single pension that is easy to understand and manage.

Currently, each member state has separate pension rules, although British expats and European workers who come to Britain and accrue pension rights can transfer their pension funds into a QROPS.

EU pension law changes

Several EU countries offer QROPS pensions, including France, Spain, Germany and Ireland.

The new proposals would not affect transfers to QROPS outside the EU, but could deter retirement savers moving within the EU from opting for a QROPS.

EIOPA wants to establish an EU wide framework for pensions by changing pension laws to allow cross-border retirement savings.

As part of this framework, EIOPA wants to see clear terms for savers, cheaper charges and fairer rules for withdrawing money from funds.

The consultation calls for technical submissions by October 5. 2015.

EIOPA intends to report the findings early in 2016.

PEPP problems

The PEPP would seem to have a number of hurdles to jump if all countries in the EU were to take up offering the pension, such as:

  • Not all countries in the EU have the euro as a currency, so currency exchange fluctuations need considering – for instance, the euro has fallen significantly against the pound recently. A retirement fund based on the euro would have lost considerable value against sterling since the banking crisis meaning UK PEPP investors would have seen the value of the retirement savings plummet.
  • Even within the single currency zone, each country has different pension tax and regulation which means without some levelling of financial rules, fund outcomes for retirement savers in different EU countries would vary

The EIOPA PEPP consultation paper is 50 pages long and covers the PEPP framework in detail.

“These products need specific tailoring to offer citizens an income defined at a national level when they retire which relates to the contributions paid in during their working lives,” said a spokesman.

“The rules must all ensure that retirement savers could not cash in their funds prematurely without facing tax or financial penalties.”