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European watchdog questions disclosure exemption for first pillar

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  • Frankfurt, Germany

The European Insurance and Occupational Pensions Authority (EIOPA) has questioned why the European Union’s first-pillar pension systems are exempt from disclosure requirements that could be imposed on personal pensions.

Justin Wray, the supervisor’s head of policy, noted that funded first-pillar systems (first pillar BIS), especially those established by Central and Eastern European (CEE) member states, essentially shared the same characteristics as third-pillar pensions.

He told the European Association of Paritarian Institutions of Social Protection’s (AEIP) annual transatlantic conference in Frankfurt that it was “desirable” for more consistent consumer protection and action on personal pensions across Europe, but he fell short of calling for changes that would allow EIOPA to impose standards on the first pillar.

Instead, Wray stressed that it was a political matter, as social and labour law governing the first-pillar system is currently solely a matter for individual member states. 

Asked by IPE to clarify, Wray added: “The question of a European approach to first-pillar BIS is essentially for the Commission. It is a question for the Commission to consider with the member states, a political decision.

“What we do is note that there are similarities. We carefully define what we see as the characteristics of personal pensions, and we see that there are similarities with first-pillar BIS arrangements in many member states. We leave up to the political parties what should be done about that.

“It is a ‘noting’, rather than saying ‘therefore, EIOPA will take action’ because it is not for us in the first instance.”

Many of the funded CEE first-pillar systems were set up by diverting part of the pay-as-you-go contribution, resulting in budget pressures that saw significant changes to Poland’s open pension funds (OFEs).

As part of the changes, the Polish state reclaimed all Polish government debt from the OFEs, transferring responsibility for payments of the associated benefits to the Polish Social Insurance Institution (ZUS) and nearly cutting the system’s size in half.

EIOPA first asked the industry if first-pillar BIS schemes should be subject to universal regulations when it last year launched a consultation on the creation of a Europe-wide personal pension product (PPP).

In its subsequent report on the PPP market, published in February, it noted that, as the first-pillar systems were based around DC, its members could still be exposed to the same risks as members of PPPs.

“First-pillar BIS members should be (made) aware of the effect of costs and could benefit from EU-wide disclosure rules, in the same way holders of regular PPPs do,” it said at the time.

“Therefore, for the sake of consistency with PPPs, it seems to be feasible to have a similar standard for transparency and disclosure of information to members of first-pillar BIS schemes.”

Readers' comments (1)

  • Translation: EIOPA wants to be an EU-wide supervisor of the pension sector. It doesn't deserve it. EIOPA has built a solid record of unwillingness to understand the British-Irish-Dutch pension sector. Let them deal with the insurance-like pension funds only. At least they do understand that sector.

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