The extension will ensure a smooth implementation for consumers and legal certainty for the sector, the Commission said.
The Council of Ministers and European Parliament have both previously recommended that the legislation be delayed, with the Parliament rejecting draft Regulatory Technical Standards (RTS) developed by the Commission and describing the legislation as "so flawed and misleading" that it is likely to cost investors money.
The RTS lay out the information that must be given to retail investors in packaged investment products with an equity element. Key information documents (KIDs) containing standardised product information in a consumer-friendly format must be made available for all PRIIPs.
The Commission said that while it believes the PRIIPs regulation "is sufficiently clear as well as directly applicable on its own, its objectives would be better served by having the RTS on key information documents already in place. In particular, the RTS will be important in offering consumers the benefit of having KIDs that are more easily comparable and standardised. The delay gives issuers and distributors of PRIIPs products until 1 January 2018 to put the provisions in place".
The Commission will now work with the three European Supervisory Agencies (ESAs) to resubmit the revised RTS, it said.
"The aim is to meet some of the concerns raised by the European Parliament, while not compromising the balance previously achieved," it said.
The ESAs will have six weeks to resubmit the revised RTS to the Commission. The RTS will have to be adopted by the Commission and will then be passed to the European Parliament and Council. The Commission hopes that the revised framework will be in place by the middle of 2017, ready to apply from 1 January 2018, it said.
Valdis Dombrovskis, vice-president for the euro and social dialogue, said: "PRIIPS is an important piece of legislation that will provide consumers with accessible and transparent information on complex investment products. To ensure legal certainty and a smooth implementation for consumers we are today proposing to extend the date of application by one year. The extension should be limited to one year only and we are glad that the European Parliament and the Council are supportive of the view that the substance of the rules should not be re-opened."
Insurance expert Chris Riach of Pinsent Masons, the law firm behind Out-Law.com said: "The delay is to be welcomed and had seemed fairly inevitable as introducing the regulation without the technical standards would have resulted in firms operating without clarity on the rules and this would have posed risks to both firms and investors."
"A delay of one year will not only provide some time for the revision of the technical standards, but will also realign the implementation date of the regulation with MiFID2, alongside which it was originally proposed and with which there is some overlap," Riach said.
"From an insurance perspective, the industry will be hoping that the revision of the RTS will include measures to enable insurance-based investments to account separately for the risk premium, and the inherent protection value of this as compared to non-insurance products, in the charges disclosure within the KID," he said.