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The requirement for the default option for a pan-European personal pension product (PEPP) to offer capital protection could undermine the European Commission’s initiative, according to the Actuarial Association of Europe (AAE).

In a statement, the association welcomed the Commission’s proposal for an EU regulation creating a PEPP, but said that some amendments were needed if the initiative were to be successful.

In a post on Twitter, Falco Valkenburg, chairperson of the pensions committee of the AAE, said that the AAE was supportive of a “courageous” PEPP proposal, but had some suggestions.  

In its statement the AAE focused its comments on the requirement for a PEPP default option to protect at least the amount a saver invests.

Philip Shier, immediate past chair of the AAE, told IPE that the inclusion of the capital protection requirement was surprising.

“It seems to have gained traction with the Commission,” he said. “Whether it will survive the parliament discussions we shall see.”

The AAE gave several reasons for opposing the capital protection requirement, but Shier said the main reason for its view was that it didn’t consider it “in the best interests of the consumer”.

The association said such a protection requirement would have little value for a consumer with a saving/investment period of 30-40 years.

Shier said: “You wouldn’t expect in the vast majority of cases that the guarantee would ever apply, but by requiring it the provider has to hold additional reserves.”

The requirement could limit the field of institutions wishing to become PEPP providers, according to the AAE.

Under the Commission’s proposal a range of institutions would be allowed to provide a PEPP: insurers, occupational pension funds, investment firms, asset managers and banks.

In its first response to the Commission’s proposal, InsuranceEurope said that, “at first sight”, the requirement for capital protection for the default investment option was positive.

The trade body for the European investment management industry, meanwhile, said it should be up to PEPP providers to decide whether they want to offer life-cycle investment strategies or strategies with minimum return guarantees as a default option.

The AAE is in favour of the life-cycle approach for long-term savers, and said the choice of default strategy should also take into account the option selected for decumulation – cash or an annuity.

It said the EU regulation for a PEPP should address the design and regulation of the decumulation phase rather than leaving this to national authorities.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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