Difficulty
I realize that I only have one chance to prepare financially for retirement, and I don’t want to mess it up. I consider simple investing through the European Pension Product (PEPP) to be a stable addition to my preparation.
I opened a third pillar through PEPP as one of the first people in Europe right after its official launch in 2022. This product intrigued me with its concept and possibilities. At that time, I had income from four countries and realized that a unified European pension product was the solution to simplify my pension savings. Moreover, it's all about passive investing, so I knew from the start that I wouldn’t have to rely on subjective predictions from active portfolio managers and their emotions. Today, I see PEPP as a stable addition to my long-term investment portfolio.
What benefits has investing through the European Pension Product PEPP brought me?
In addition to the market return itself, which has been above average in recent years, I appreciate the significantly lower fees compared to traditional third-pillar solutions. This automatically contributes to higher returns.
Of course, behind the lower fees is simple math. I opened my third pillar with Finax online in a few minutes through my mobile app. Supplementary pension system providers usually have to pay for dozens of branches that need heating and lighting, plus salaries for their analysts and commissions for brokers. All of this is ultimately paid for by the client. It’s a standard business model. The question is whether, as a client, I am willing to participate in this model. Personally, I no longer see the point in it.
Why did I open PEPP, even though I already had traditional pension investing with Finax?
The main reason was to protect myself from impulsive decisions – PEPP helps me resist withdrawing savings prematurely before reaching retirement age. Traditional managed portfolios offer flexibility, but that flexibility can paradoxically be a disadvantage for long-term investing. One wrong decision over a 10 or 20-year horizon could cut a significant portion of my lifetime savings. And this isn’t just a theory – many people save and invest for decades, yet their capital remains low before retirement. Why?
Throughout their lives, they kept withdrawing their funds. So, even though they save all their life, in the end, they have nothing. They didn’t give their money enough uninterrupted time to work.
Other benefits include tax advantages, as they are in line with tax regime of standard pension products in Ireland.
What level of pension do I expect as a monthly annuity?
To date, I have contributed 6,300 euros to my PEPP account. With an average annual return of 8%, I should be able to receive a monthly annuity of 1,000 euros, indexed to inflation, starting at age 65. I plan to withdraw this amount for 20 years – until I reach the age of 85. The rest of my retirement income will come from other investment products. I am therefore focusing on diversification even within my investment solutions.
If you want to achieve a similar annuity, you can reach it through a lump-sum investment or monthly contributions. For example, someone who can save and invest 121 euros per month for 30 years will achieve a monthly annuity of 1,000 euros.
Secure a comfortable future and take advantage of the European pension benefits
How to open a PEPP account and set up an investment?
I opened my PEPP through the Finax mobile app in about two minutes. Since then, my investments have been fully automated.
As for setting up the investment, the robo-advisor took care of everything for me during account creation. This means that after filling out the questionnaire, the robo-advisor recommended the appropriate investment settings, which it will oversee as long as I have money invested.
Since I still have more than three decades until retirement, the robo-advisor recommended a 100% equity portfolio.
How do I plan to withdraw my pension?
I certainly don’t plan to withdraw the entire amount at once, as the payout phase within PEPP is very well-structured – most of my capital will remain invested dynamically even after retirement. This means that part of my savings will continue to grow and appreciate during the annuity payout period. It won’t stop earning.
What are the advantages and disadvantages of PEPP compared to the third pillar?
In addition to the already mentioned fees for similar index-based solutions and the full digitization, I greatly appreciate its portability across the EU. If my career path takes me outside of my home country, I will be able to contribute to and draw from my savings anywhere in the EU.
Do you expect any negative intervention from the government?
Quite the opposite – PEPP is already harmonized and in line with the Irish PRSAs. Responsibility for retirement income continues to gradually shift from the state to the saver. And that, in my opinion, is the right approach that the Irish government has been thankfully taking for a while now.
Is there anyone to whom you wouldn’t recommend PEPP?
Basically, no. In my opinion, PEPP shouldn’t be the only investment tool for building retirement income. As I mentioned at the beginning, in my case, it is a supplementary product that fits into my investment portfolio. Such a supplement, from my perspective, is suitable for any investor.
Moreover, thanks to it, I also receive quality financial education – through the large amount of content produced by Finax, which today helps nearly 100,000 investors invest with us.
Read about the risks involved in investing.
Boris Jankovský – former professional athlete and now a financial expert with over 14 years of experience.
Secure a comfortable future and take advantage of the European pension benefits
