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Consumer group issues stark capital protection warning over PEPP

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A financial services lobby group has raised concerns over lack of capital protection measures in the current development of legislation for pan-European personal pension products (PEPP).

Better Finance, a Brussels-based lobby group for consumer protection, aired its protests as European politicians worked towards a PEPP regulation, with discussions taking place involving the European Parliament and national government representations.

The group told IPE that it had repeatedly emphasised that a real capital protection or guarantee implied that capital must be “calculated on the basis of the amounts saved before the deduction of all accumulated fees, charges and expenses directly or indirectly borne by investors”.

It added that this should be in real terms, if possible, “offsetting the heavy negative impact of inflation over time”.

If not, then PEPP documents “should at the very least include a prominent warning about the devastating impact of inflation and fees on the real value of pension savings over time”, Better Finance argued.

“Otherwise, [we] will have no choice but to strongly recommend for EU citizens to steer clear of such a misleading and value-destroying option,” the group said.

A recent study conducted by Better Finance – albeit based on a limited sample – found that “fund documentation in the US… contains more and far clearer information on the evolution of asset allocation over time” than proposed documents for the PEPP.

“What’s more is that the average annual fee for these funds was found to be above 1.6% in the EU, versus about 0.6% in the US,” the lobby group added.

Better Finance has also argued in favour of PEPP providers having to “publish their past performance alongside the PEPP’s past performance for at least the last 20 years”.

Alternatively, the results should be made known “since the inception of the product”, it said. The group noted that this was suggested by the parliament’s Economic and Monetary Affairs Committee (ECON) in a draft report.

A compromise position for PEPP is being sought in Brussels by 10 September.

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