Luxembourg ready for third pillar pensions – Pan-European Personal Pension (PEPP) Regulation entered into force in March 2022
A Pan-European Personal Pension Product (PEPP) is a long-term, individual, non-occupational personal pension product (third pillar pension), subscribed to on a voluntary basis by so-called ‘PEPP savers’ to provide supplementary income on retirement.
As a reminder, Regulation (EU) 2019/1238 on a pan-European Personal Pension Product (“PEPP Regulation”), was published on 27 July 2019 and entered into force 20 days thereafter, with Level II - Regulatory Technical Standards (RTS) on the PEPP having been published on 22 March 2021. The PEPP Regulation has entered into application on 22 March 2022, precisely 12 months after the publication in the Official Journal of the European Union of the delegated acts.
More importantly, on 4 March 2022 the Luxembourg law of 25 February 2022 entered into force which lays down certain rules on, among others, the PEPP Regulation. A European regulation has direct effect in all European Members States. The new Luxembourg law provides for the designation of the Commission de surveillance du secteur financier (CSSF) and the Commissariat aux assurances (CAA) as the competent authorities to supervise compliance with the PEPP Regulation, and describes the powers attributed to the CSSF and the CAA, including sanctioning powers that are applicable.
As a reminder and as set out in the PEPP Regulation, PEPP providers can be life insurance undertakings, which would fall under the responsibility of the CAA, whilst credit institutions, certain institutions for occupational retirement provision (IORP), investment firms and most importantly UCITS management companies as well as AIFMs would all be subject to the supervision of the CSSF. All PEPP providers are able to benefit from a single EU market for personal pensions with an EU passport for the distribution of their PEPP.
The foreseen "portability" of the PEPP, enabling retirement savers to transfer the benefits accumulated in one or more Member State(s) when moving between them, is a feature that has been long awaited among an increasingly mobile EU workforce.
Luxembourg is very well positioned to support the uptake of the PEPP, given its long-standing experience in both (i) passporting funds such as UCITS across borders, as well as in (ii) setting up and administering pension fund vehicles, in many cases as cross-border and multi-employer funds.
Additional efforts at the level of investor education will be critical, along with the new product’s tax treatment, in making the PEPP a true success story.
This is an opportunity for Luxembourg to take advantage of this new pension product to become the prime location for the creation and distribution of such cross-border products.
Luxembourg changed its Income Tax Law in 2021 to allow PEPP savers to benefit as from the calendar year 2022 from a deduction of retirement contributions paid into a PEPP product from their personal income tax.
As at 1 January 2022, contributions made during the calendar year into a registered PEPP in line with article 111ter Luxembourg Income Tax Law, and those made under an individual pension scheme covered by article 111bis LITL, can benefit from a personal tax deduction subject to an annual aggregated cap of EUR 3,200 per individual subscriber.
David Zackenfels, Senior Legal Adviser