Development of capital pension funds in the Czech Republic and Bulgaria and readiness to implement PEPP
| Author | Elroi Hadad,Stanislav Dimitrov,Jivka Stoilova-Nikolova |
| DOI | http://doi.org/10.1177/13882627221150542 |
| Published date | 01 December 2022 |
| Date | 01 December 2022 |
| Subject Matter | Articles |
Development of capital pension
funds in the Czech Republic and
Bulgaria and readiness to
implement PEPP
Elroi Hadad
Shamoon College of Engineering (SCE), Israel
Stanislav Dimitrov
VUZF, Bulgaria
Jivka Stoilova-Nikolova
VUZF, Bulgaria
Abstract
Unfavourable demographic trends are exerting more pressure on public pension systems in all
European countries, and the need for alternative sources of pension provision is increasing.
Personal pension products can be considered as a possible solution to the problem of providing
adequate pensions. The pan-European personal pension product (PEPP) is the first standardised
pension product subject to a uniform EU regime. Now that the regulatory framework for PEPP
has been established at the EU level, it is up to the Member States to create an appropriate
legal environment in order to promote the successful development of PEPP. This article examines
the role of voluntary pension funds and the readiness to implement PEPP in the selected countries.
We focus on the Czech Republic and Bulgaria, where the role of private pension funds is growing.
We examine how PEPP can fit into the national pension systems and make some proposals regard-
ing regulatory measures to be taken in order to ensure that PEPP is not at a competitive disad-
vantage against national pension products. We find that PEPP may fill the pension gap in
countries where public pensions are the main source of retirement income and the role of occu-
pational pension schemes is insignificant.
Keywords
PEPP, Bulgaria, Czech Republic, European Union, private pension
Corresponding author:
Elroi Hadad, Shamoon College of Engineering (SCE), 56 Bialik Str., Beer Sheva 8410802, Israel.
Email: hadadel@sce.ac.il
Article
European Journal of Social Security
2022, Vol. 24(4) 342–360
© The Author(s) 2023
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/13882627221150542
journals.sagepub.com/home/ejs
Introduction
In recent years, all EU Member States have faced major demographic changes and growing pres-
sure on their public pension systems. Existing public pension systems (pay-as-you-go) can no
longer provide adequate retirement benefits (Iglesias, 2010; Puyol, 2018). These demographic chal-
lenges and related economic and fiscal considerations have caused countries from Central and
Eastern Europe to undertake significant structural pension reforms, introducing the multi-pillar
pension system recommended by the World Bank (1994).
1
This transition from public pension systems to multi-pillar pension systems has led to a growing
role for supplementary private pre-funded pension schemes and to a gradual shift from defined
benefit (DB) to defined contribution (DC) schemes. The expansion of DC schemes can be asso-
ciated with a greater role assigned to personal pension products (PPPs) in the EU.
The European Commission has repeatedly stressed the importance of PPPs in meeting the chal-
lenges of an ageing economy and to address the ‘pension gap’. However, the development of per-
sonal pensions faces serious shortcomings of a highly fragmented and underdeveloped personal
pension market with low cross-border sales (European Commission, 2017a). For this reason, the
introduction of a new standardised pension product on a pan-European basis, namely the
pan-European Personal Pension Product (PEPP)
2
, which is expected to strengthen the single
market in personal pensions and to facilitate the goal of multi-pillar diversification, has generated
strong interest among professionals, consumer organisations, and in academia.
The PEPP is designed as a simple, safe, transparent, cost-effective, flexible, and competitive
product, subject to strict consumer protection rules. It is a funded voluntary private pension plan
with an explicit objective to provide income on retirement, designed as a long-term savings
product (Hooghiemstra, 2020; Van Meerten and Wouters, 2019). It is aimed at encouraging cross-
border provision and portability of pension products, thus facilitating the general trend towards
increasing mobility and cross-border activities among EU citizens (Van Zanden et al., 2021).
Moreover, it is expected that PEPP will both encourage saving for retirement among certain
groups of individuals, such as mobile and self-employed workers, and also open new opportunities
for small and medium-sized enterprises (SMEs), which are unable to run an occupational pension
scheme (Amariei, 2018).
In this paper we examine the readiness of Central and Eastern European countries to implement
PEPP, considering the role of voluntary pension funds (VPFs) in pension provision in these coun-
tries. The study will address two main research questions: how to enhance the role of the existing
voluntary pension plans, and what is the potential for the development of PEPP in the countries
studied. In this regard, we seek to study the appropriate regulatory environment that will result
in strong take-up of PEPP. We propose several measures to improve implementation of PEPP:
ensuring adequate legal regulation regarding the investment policy and investment strategy of
pension providers; introducing appropriate tax incentives; and creating a competitive environment
leading to the reduction of costs and fees attached to pension products.
We perform a comparative analysis of Bulgarian and Czech pension data to demonstrate how PEPP
can fit into multi-pillar pension systems and contribute to the diversification of pension provision. We
1. Other countries –countries from Latin America and Africa –have also undertaken structural pension reforms by fully or
partially privatising their public mandatory pension systems. These, however, are not the focus of this study.
2. Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20June 2019 on a pan-European Personal
Pension Product (PEPP) [2019], OJ L198/1.
Hadad et al. 343
To continue reading
Request your trial