A Europe-wide personal pension regime would require default products to guarantee contributions or need to be based around a lifecycle fund, according to proposals by the European Insurance and Occupational Pensions Authority (EIOPA).
In a consultation paper, the supervisor noted that while it had initially considered the introduction of a passport system to accredit all personal pension products (PPPs), it would focus on introducing a second, parallel PPP system that met certain minimum standards.
EIOPA previously referred to such an approach as the 29th regime, a term also used by the European Commission when it championed the development of the PPP market in its recent green paper on the Capital Markets Union (CMU).
The consultation suggested that the goal of a Pan-European Personal Pension (PEPP) system would be to deliver value for money for consumers through economies of scale as providers operated across national borders.
National regulators, however, would cover other areas, such as how to oversee the decumulation phase.
The consultation also suggested the launch of PEPPs would support the development of multi-pillar pensions in countries yet to establish strong second-pillar systems.
EIOPA outlined a number of high-level investment principles it felt should apply to all PEPPs, including a de-risking strategy – such as a lifecycle fund – for default strategies where contributions were not guaranteed.
It said: “Assets should be selected with a view to the most efficient liquidity profile over the longer term, including the potential participation in longer-term investments as appropriate to the investment horizon and payout profile of the PEPP, including, as appropriate, infrastructure and other similarly illiquid investments.”
The supervisor also suggested PEPPs should have a limited number of investment options, where the provider has responsibility for reviewing holdings.
“If an investment option contains a guarantee, the PEPP provider is not required to apply a life-cycling strategy to that investment option,” it said.
“However, a duty of care would still apply to ensure the PEPP does offer value for money and sets an investment strategy that offers an appropriate exposure to risk premium for long-term investment.”
It added that a long-term investment horizon could be achieved by pooling all member assets into funds where smoothing of returns was applied, allowing for the provider to access the premium associated with certain less liquid assets.
EIOPA stressed that high-level investment principles should be the only limits on a provider’s ability to design investment options, to ensure they have “sufficient freedom when developing the different investment options”.
The consultation, which concludes on 5 October, follows on from a discussion paper on PPPs in early 2013 and a preliminary report in 2014.