The EU occupational pensions supervisor has highlighted to the European Commission industry representatives’ verdict about the implications for the pan-European personal pension product (PEPP) of including the initial cost of advice in the charge cap.
On Friday EIOPA delivered to the EU executive its proposed legal instruments and advice on delegated acts to implement the framework for the PEPP.
In a letter to Commission vice-president Valdis Dombrovksis, EIOPA chair Gabriel Bernardino said the supervisory authority’s proposals had found support from a wide range of stakeholders, but that he wanted to highlight that “industry representatives stressed their negative assessment of the PEPP business proposition’s viability in light of the Basic PEPP’s cap on costs and fees namely due to the initial cost of advice”.
“Factually, the level of maximum costs per annum of the Basic PEPP can be observed in current, well-established markets and cannot necessarily – over the long-term – be regarded as excessively low,” Bernardino continued.
“However, it is important for us to bring to your attention that the cost cap’s reference to the accumulated capital may lead to a situation where the providers’ expenses cannot be matched in the initial phase of a contract and in the advanced stages of the contract, the costs to the consumer can be relatively high.”
Bernardino also said EIOPA believed that the provision of advice to consumers “may deserve further consideration and guidance to allow for an advice process that is fitted to the specificities of the PEPP and to the opportunities of digitalisation and online distribution”.
The challenges involved in gathering all the relevant information to understand a consumer’s sources of future retirement income underlined the need for a European pension tracking system, he added.
The final PEPP regulation stipulated a cost cap for the so-called Basic PEPP, the default option, of 1% of accumulated capital per annum, and a requirement for PEPP providers or distributors to provide advice, including a personalised recommendation, to customers.
Part of EIOPA’s job was to draft rules specifying the types of costs and fees that should be included under the cost cap for the Basic PEPP.
It has proposed an “all-inclusive” approach, with as narrow as possible a list of exemptions from this approach. The cost of providing a capital guarantee is excluded, although it must be expressly disclosed.
A spokesperson for EIOPA said: ”As there are two types of Basic PEPPs (one with the ambition to recoup the capital and one with a guarantee to receive the capital), the costs for the additional layer of protection for the capital guarantee is taken out of the cost cap. Otherwise we would not have a level playing field between the two types of Basic PEPPs and the corresponding PEPP providers.”
According to EIOPA’s proposal, costs incurred by providers for the initial advice could be amortised in the cost cap.
In addition to covering the cost cap of the basic PEPP, the draft regulatory technical standards cover two mandatory consumer information documents, and risk-mitigation techniques.
The draft implementing technical standards set out the procedures, processes and templates for annual supervisory reporting requirements for PEPP providers and cooperation and exchange of information between national competent authorities and EIOPA.
Bernardino said: ”With the delivery of EIOPA’s proposed implementing measures specifying the PEPP Regulation, EIOPA has fulfilled its objective to design the PEPP as a simple, safe and reliable retirement savings option for the European citizens and to provide a powerful tool to close the pension savings gap.”