PEPP: One expat pension product for the entire EU

Many expats in the Netherlands have resided in other countries and will probably do so again in the near future. These expats might end up with many different kinds of pension claims in several countries. Of course, this is not very convenient.

Relocating expats and their pensions

In order to prevent these issues, expats can try to transfer all of their corporate pension claims to one final corporate pension claim. Is this as easy as it sounds? Well, such a transfer raises several issues:

• Each country has its own legal and tax regulations for incoming or outgoing pension capital transfers.
• Transfer of value is a rather complex issue as it encompasses legal, tax, actuarial, and product specifications.
• Even when a transfer of pension capital is possible from a legal and tax point of view, expats still have to decide whether it is also desirable. Differences in the nature of pension claims, for example, might make the transfer of pension capital not attractive at all.

Ideal solution for expats in the EU

In order to prevent all of these issues, it would be ideal for expats in the EU to have their own personal corporate pension plan, which would be valid in all EU countries.

This would prevent transfer issues and the expat would also be able to choose the kind of pension plan that best suits their wishes.

Due to several legal matters, it is not yet possible for an expat to have such an individual corporate pension plan in the EU. It is also highly unlikely that this will change in the near future.

New EU alternative: PEPP for Expats

In June 2017, the European Commission introduced “PEPP for Expats”. This newly to be created Pan European Pension Plan (PEPP) will be available to every EU citizen in order to build up sufficient retirement coverage with tax benefits.

The PEPP will be a voluntary scheme, offered by a broad range of financial companies across the EU. It should serve as a complement to public and occupational pension systems, alongside existing national private pension schemes.

This will result in the following summary regarding pension accumulation:

• Pillar 1: State Pensions
• Pillar 2: Corporate Pensions
• Pillar 3: Private Annuities like PEPP

Positive aspects of the PEPP for Expats

The positive aspects of the PEPP for Expats are as follows:

• Expats will be able to use the PEPP in the whole of the EU, without any transfer of value issues, which is a substantial improvement.
• Expats who currently do not have a pension can use the PEPP to start building up one with tax benefits.
• Expats can choose the PEPP product they prefer, as well as buy it from the financial institution they prefer.

Many EU member states are looking into the future funding of state pensions. This may lead to a reduction in what is offered. With this in mind, it is almost a given that PEPP will be useful.

Critical aspects of the PEPP for Expats

We should be critical of the following aspects of the PEPP for Expats:

• The essence of optimal pension planning is to reduce costs and invest in the best way possible. Cost reduction is best done through a collective approach. As the PEPP does not have a collective but individual nature, it does not really have the best starting position for all-important cost reduction.
• The EU Commission advises EU member states to provide tax benefits for citizens who have a PEPP. This sounds plausible, as the alternatives, such as corporate pensions, will also have tax benefits. However, it remains to be seen how much this possible tax benefit will amount to.

Support for the PEPP

Besides the EU Commission, there is substantial support for the PEPP from the European Parliament and from the European Insurance and Occupational Pensions Authority (EIOPA). EIOPA is the European supervisor on insurance and pensions and has an important role and excellent reputation. It also has a very positive attitude towards the PEPP.

The future of the PEPP

We will follow the process of how the EU tries to create the PEPP as a viable alternative for corporate and state pensions in a positive, yet critical manner. We expect that the deciding factors for the creation and success of the PEPP will come down to the following:

• To what extent are the EU member states willing to provide tax benefits for the PEPP owner?
• Who within the EU will fund said tax benefits?

In the Netherlands, the tax benefits for corporate pensions are more substantial than the tax benefits for the private annuities of Pillar 3.

The Expat Pension Holland approach is to translate complex situations into clearly communicated advice. The choice between a standard or tailor-made expat pension claim is very important and by its nature, rather complex.