The Pan-European Personal Pension Product (PEPP) was created to provide a simple, transparent, and portable way for Europeans to save for retirement. To protect consumers, the Basic PEPP is subject to a strict 1% annual cost cap. While the intention is sound, the inclusion of Value Added Tax (VAT) within this cap is creating serious distortions—particularly for providers structured as investment firms.
VAT is not a fee retained by providers; it is a government-imposed tax collected on behalf of the state. Yet under current rules, investment firm PEPP providers must absorb VAT into the 1% cap, while insurance-based providers—whose fees are VAT-exempt—retain the full margin. The result is a tilted playing field: identical services are treated differently simply because of legal form or jurisdiction. In high-VAT countries, this imbalance is even sharper. A saver in Hungary (27% VAT) effectively gets only ~0.79% worth of service within the cap, compared to ~0.85% in Luxembourg and a full 1% for VAT-exempt insurers.
This inconsistency undermines both fairness and the single-market vision behind the PEPP. It discourages innovative providers such as fintechs and asset managers from entering the market, reduces competition, and leaves consumers with fewer choices. Importantly, excluding VAT from the cap would not reduce transparency: providers would still be required to disclose total costs to savers, including taxes.
LifeGoals is calling on EIOPA and EU policymakers to take immediate steps to clarify that VAT lies outside the 1% fee cap. Just as the cost of capital guarantees is excluded to ensure comparability, VAT—an external tax—should be treated the same way. This adjustment would restore neutrality, align with EU law and case precedent, and strengthen the viability of PEPPs as a cross-border retirement solution.
By fixing this technical but crucial issue, the EU can ensure that the PEPP fulfils its promise: a fair, competitive, and accessible pension product for all Europeans.
You can download the full paper here.