OIPE – what is the Pan-European Pension savings system

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January 20 2021

On August 15, 2021, the law on PEPP is to enter into force. In this way, we will adjust our legal system to the requirements of the Regulation of the European Parliament and the EU Council of June 2019 on a Pan-European Personal Pension Product (PEEP). The Polish government has just submitted the bill for public consultation. It is therefore worth knowing how the PEPP is to operate.

PEPP – what is it

PEPP is a Pan-European Pension Savings Scheme. Citizens of EU countries will have the opportunity to invest cross-border, and when they move from one country to another, they will easily transfer contributions. Thanks to the PEPP, the taxation of the pension system is also falling.

Who can join the PEPP

Article 4 of the Act allows the conclusion of a PEPP account agreement from the age of 16. However, in the case of a minor, the payments will be limited to the amount of income obtained in a given year from employment under an employment contract.

What does the payment of accumulated funds look like in the PEPP

The regulations regulate in detail the rules on which the account owner can withdraw the saved funds. The payment takes place:

At the request of the saver after reaching the age of 60.
After acquiring pension rights and reaching the age of 55.

There is one more condition – to withdraw funds, the saver must deposit funds into the PEPP account or PEPP sub-account for at least any 5 calendar years, or they have accumulated half the value of the contributions no later than 5 years prior to the date of the withdrawal request.

The funds accumulated in the Pan-European Pension Savings System are to be inherited. In the event of the saver’s death, the entitled person or the heir may apply for the payment of funds.

What are the benefits of the PEPP?

People who will save for retirement under the PEPP will be exempt from personal income tax. However, they must meet several conditions:

They will only pay out accumulated savings after the age of 60 or when they acquire retirement rights and turn 55.
They will save for the PEPP for at least any five years, or pay more than half the value of the contributions no later than five years before the date of the withdrawal request.

However, it should be noted that the income generated by saving in PEPP, including that received by the entitled in the event of the saver’s death, will constitute income from other sources, regardless of the country in which we maintain the account or sub-account.

It is worth mentioning that there is already an equivalent of PEPP in Poland. It is an IKE under the second pension pillar. The Ministry emphasizes that IKE receives positive opinions from financial institutions, and also enjoys considerable trust among the savers themselves.

How to enter into a PEPP contract

The draft law encourages the conclusion of the contract for the operation of the PEPP in electronic form. An online contract is a flexible solution that takes into account the needs of the parties to the contract. The ability to conclude contracts related to financial services remotely becomes particularly important during the coronavirus pandemic, when customer contact with the bank is difficult.

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