EUROPE – EU policymakers must change tack to increase the disclosure of information by defined contribution (DC) pension funds, according to The European Insurance and Occupational Pensions Authority (EIOPA).

The authority pointed to a "growing" need to help people plan their retirement more effectively by providing information focused on "behavioural purposes".

"Just providing sufficient legally and technically relevant information has proven not to be effective, and can even be counter-productive," it added.

According to the Frankfurt-based authority, DC scheme participants are generally not considered "homo economicus", insofar as they tend to try to reduce complexity, use rules of thumb, are "prone to bias" when making decisions, are "unrealistically" optimistic, allow short-term interests to prevail over long-term ones and have limited self-control when saving for the future.

EIOPA added that non-professional scheme members increasingly needed to cope with risk, yet current methods of DC information provision focused on "protecting the provider rather than helping the individual".

EIOPA therefore called on Brussels to adopt a new approach, one directed towards the needs of scheme members.

This approach, it said, is new, as policymakers and experts currently tend to think from the perspective of the market and the scheme.

"Policymakers should think through the behavioural purposes of the information they are drafting," the authority said.

"What should an individual be able to do with the information? What sort of financial decisions or choices should he make after reading the information?"

EIOPA went on to recommend that information be presented in layers, with the first providing answers to key questions such as whether scheme members should adjust their current retirement strategy, whether they need to make any financial decisions and how much pension income they can expect.  

The following layers could then provide more complex information.

The authority said it hoped the approach could be applied to information provision across all member states and all pillars of pension provision.

"This," it said, "would lead to the harmonisation and comparability of the common features, while still allowing room for the specific national contexts and details as determined by national social and labour laws."

However, EIOPA acknowledged that, if policymakers adopted this new approach to information provision, they would incur greater technical challenges.

"To provide members of DC schemes the necessary support, information needs to be translated into answers to members' key questions," it said.

"For instance, information about an accrued balance is not meaningful for members. It does not answer their key questions. Therefore, this figure needs to be translated into a hypothetical projection of pension income."

EIOPA also recognised that, for policymakers and experts, it would be difficult to reach agreement on the assumptions for the projections.

However, because members are "so little involved" in pension planning, EIOPA believes these technical challenges need to be overcome to support people in planning their retirement.

Otherwise, scheme members will have to deal with these issues themselves, leading to "unsatisfactory personal and societal outcomes".

The authority is currently working on principles for information disclosure to be included in the proposal for a new IORP Directive.