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I am very pleased to publicly announce that Finax, as an investment broker, became the first entity in Europe authorized to provide the pan-European personal pension product and our clients will thus be the first EU citizens to be offered this voluntary pension savings option.
This is the first instance of a Slovak financial institution being the first to introduce a new financial product in the history of Slovakia's membership in the European Union.
That’s why I would like to highlight that even a relatively small entity such as Finax can, thanks to its innovative nature, outrun all the other European financial giants.
Note: Information on legislation and tax incentives specified in this article applies primarily to Ireland. For information on the legislative treatment of the European pension in other countries, please refer to the localized versions of this blog in other language subpages.
What is PEPP?
PEPP stands for Pan-European Personal Pension Product and is based on the European Parliament's Regulation 2019/1238, which came into force in March 2022.
PEPP is:
- a voluntary pension savings scheme,
- designated for all residents of the European Union,
- creates a single market for voluntary savings across the EU
- can be provided by a wide range of financial institutions - banks, insurance companies, licensed securities dealers, portfolio management companies, asset management companies, alternative investment companies, and occupational pension companies,
- this scheme should encourage EU residents to invest, thereby improving the flow of capital to firms, opportunities for innovation, and indirectly supporting employment in the EU.
The Main Advantages of PEPP
I would define the following to be the five key benefits:
1. Portability. Savers will have one voluntary pension savings account portable to another country when changing residence, being allowed to either continue saving with the same provider or switch to another provider within the EU in such an instance.
2. The maximum amount of total fees paid is set at 1% of the amount of savings managed.
3. Full product transparency and uniform rules per product regardless of the type of company providing the product.
4. Legislative certainty at the European Union level. Changes will apply uniformly across Europe, and the product will avoid national localisations and political influences. For multinational companies, the PEPP thus guarantees a uniform pension policy for their employees in different EU countries.
5. Tax treatment being in line with other Irish pension products. Unlike in some other countries, the tax regime for both PRSA and PEPP are the same in Ireland, making PEPP just as viable of an option as other domestic pension schemes.
Who Is the European Pension (PEPP) for?
We will offer PEPP to everyone seeking to avoid relying only on the state pension in old age, supplementing it with voluntary savings. In general, however, we want to offer PEPP to the following four key segments:
- Mobile workers across the European labour market.
- Multinational companies can utilize PEPP to provide all their European employees with a single pension benefit under the same terms and conditions in all the countries in which they operate.
- Domestic companies that employ foreign citizens working in Ireland for a limited time.
Finax is already known in the market for its strong focus on financial education, which we provide free of charge for all our clients and app users.
PEPP Cannot Be Provided by just Anyone
Thanks to the National Bank of Slovakia's Innovation Hub, we could communicate with the regulator well in advance and apply for registration a few days after the law was passed. During the licensing process, our model was subjected to very strict tests that the PEPP regulation requires. Our product passed simulations of more than 15 million scenarios.
The PEPP regulation is based on complex mathematical and statistical modelling, where Finax, as a PEPP provider, had to demonstrate that savers' contributions will most likely outperform the development of the expected inflation.
Finax will be under the permanent supervision of the National Bank of Slovakia and the European Insurance and Occupational Pensions Authority (EIOPA).
How Will Savers' Money Be Invested in the European Pension?
Finax will invest savers' contributions in index funds, as it already does in its other products. Portfolio composition during the first years of saving will be virtually identical to the 100% equity portfolio we currently offer.
The registration can be carried out via the Finax mobile app or on our website. The process is very simple and straightforward, as required by the regulation itself. It takes 10-15 minutes, utilizing facial biometrics software to verify the customer ‘s identity, enabling them to register from the comfort of their home
Our robo-advisory software will suggest a suitable risk profile to the saver, advise how much a person should invest per month to get the desired amount of pension benefits, invest all deposits automatically, and maintain the correct investment risk.
This way, the saver does not have to worry about anything. However, they can use the time saved by financially educating themselves thanks to our blogs, videos (which already have over 2 million views on YouTube), podcasts, and webinars, which I consider a crucial part of our product.
Security of the European Pension
To obtain the authorization, our portfolios have undergone rigorous stress scenario testing, and we have implemented special risk mitigation techniques in the investment process.
The PEPP regulation requires us to examine various risks, and the European Pension we offer has achieved the best possible safety rating according to the regulation – risk 1 (SRI indicator) – on a 40-year horizon.
Initially, savers will invest their savings in around 7,400 of the largest and most successful companies from around the world, and 10 years before retirement, a portion of the savings will start to move non-linearly into more conservative bonds.
At the same time, our solution eliminates what I view as the biggest shortcoming of many pension products: the investment strategy of the payout phase. Many existing pension products allocate the entire sum from which an annuity is supposed to be drawn into conservative payout funds before retirement, Finax keeps three-fifths of savers‘ assets in equity throughout the payout phase, thus ensuring a more significant wealth growth during the pension payout phase as well.
Taxes and Tax Incentives
When it comes to tax regime, PEPP is subject to the same rules as PRSA products. Therefore, it is eligible for an income tax relief under the same conditions as a PRSA.
Furthermore, payout options are again subject to the same rules as a PRSA, with a 25% tax-free lump sum withdrawal and regular payment options from the remainder.
Lastly, employer contributions are allowed, with the benefit in kind (BIK) being tax-exempt up to 100% of the employer limit (emoluments per calendar year).
PEPP Fees Are Very Low
Finax will offer PEPP products significantly cheaper than its Investing in ETFs portfolios. Clients will not pay any single or annual contribution charge for the European Pension. They will only pay a single capped fund charge of 0.6% p.a. + VAT, making a total of 0.74% p.a. (See the full PEPP price list) https://finax.eu/themes/finax-rebranding/assets/_static_docs/ie/pepp/price-list-pepp.pdf?1778243247
The minimum amount of a one-off deposit or regular monthly contribution is only 10 euros.
Savings are committed until the saver's retirement. The saver can only withdraw the funds at retirement in a payout phase lasting at least 5 years.
Finax Offers a Very Lucrative Discount to its Clients
Any client who convinces their employer to provide the European Pension as a benefit for their employees will earn 500 euros managed free of charge per each employee with a PEPP account. The discount will apply throughout the period of active use of the European Pension by the employer.
If the company contributes to more than 100 employees, we will manage the entirety of the referring client's wealth held in Finax free of charge for the duration of the European Pension benefit with the referred employer.
In the event of any questions or suggestions do not hesitate to contact us at either [email protected] or telephonically at +421 232 477 760.
We wish you happy investing!
