With EU citizens holding around 34 trillion euros in savings—one-third of which sits in bank deposits—Luxembourg sees an opportunity in European pension reform.
The Pan-European Personal Pension Product (Pepp), an EU initiative designed to offer a portable, voluntary retirement savings plan across member states, is under review for potential amendments. Industry representatives, including Alfi, advocate for changes that would make Pepp more attractive for asset managers and fund distributors. Luxembourg research meanwhile suggests strong demand for such a product, reinforcing Luxembourg’s potential role in manufacturing and distributing Pepp solutions, further cementing its financial hub status.
“If Luxembourg can play a role in lobbying for a strong Pepp product, it means that the fund and asset managers which have Luxembourg-based funds will have an interest in promoting the Pepp and offering a cheap solution, because funds are cheaper than insurance solutions,” said Sebastiaan Hooghiemstra, a senior associate and attorney at law at Loyens & Loeff law firm.
Hooghiemstra was involved in the drafting of the regulation in its earlier stage, leading up to the launch of the first generation of Pepp products in 2022. Franklin Templeton funded his work because, he explained, “asset managers saw this as an opportunity to penetrate the EU retirement market.”
Supplemental pension
Pepp is described as “a uniform European pension product, supervised by national authorities and the European Insurance and Occupational Pensions Authority (Eiopa), designed to provide an old-age income alongside the state pension and national supplementary pillars.” It is “portable across the EU and voluntary.”
Luxembourg, said Hooghiemstra, needs rule changes in several aspects of the first version of the law, notably around administrative burden. Also, he explained “the investment rules need to go from an insurance type of investment to a more fund manager and asset manager-friendly investment policy, so that it will become an attractive product for fund and asset managers.”
If the requisite legislation creates the opportunity, he explained, it would be “major” development. “Luxembourg would be the so-called product manufacturer.”
Retail investments to order
He gave as an example the kind of robo-advisory solution to be found in Germany “which is, according to the financial needs, balancing between at the one hand, new kinds of retail investments, like Eltifs, and a lot of Ucits, and bonds and equities, and according to your needs and how rich you are, your age, they rebalance it automatically.”
“If you do that with the Pepp, a kind of family office-type of robo-advisory solution, and you put the Pepp sauce over it, you can save for retirement in a very sustainable way,” he explained. “Luxembourg would establish those Eltifs and Ucits funds or the Etfs on the product manufacturing side and that is where the value is.”
Luxembourg is also ready to benefit from Pepp on the distribution side.
“Since we have already experience with cross-border distribution, in the Ucits and Eltif domains, Luxembourg is the best positioned for this future product to play a role in the manufacturing process,” Hooghiemstra explained.
Identifying gaps
The legislatively-required amendment process is slowly making its way forward with a 2026 horizon for amendments. “They are now identifying the gaps, to come up with an improved version,” he said.
This may help shed light on why only three EU countries — Slovakia, the Czech Republic and Poland have created the necessary legislative framework.
Luxembourg Institute of Socio-Economic Research (Liser) research published in July last year has examined the latent demand and fee price tolerance for Pepp in Luxembourg and its workers in the Grand Région.
Willing to sacrifice
“In Luxembourg, people were really willing to sacrifice a little bit of returns, in order to have this other characteristic that is bringing the product to another country,” said Javier Olivera, a research scientist at Liser.
The research showed that, under certain circumstances, respondents were willing to sacrifice up to 3.6 percent of their investments to keep the same policy after moving to other EU countries. This is according to a July 2024 paper entitled “Pan-European pension plans as a way to cope with the risks of ageing, automation and new forms of work”, published by Olivera and his colleagues in WeLaR, an online journal.
“Younger people are more responsive, also people who are more mobile, for example, people who have had experience working in another country before Luxembourg, also people who don’t own a house or have big roots, so they are mobile people,” he explained. “The willingness to enroll for a product like this was very high.”
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