The European Commission is proposing to require pension funds to inform their national regulator if performance “materially deviates from the applicable benchmark”, according to revisions to the IORP II Directive that it put forward on Thursday.
If the regulator concludes that the costs charged are not in line with investment results or underperformance persists for three years, funds would have to inform their members and “explain in a simple manner the reasons for the underperformance, how the costs and charges are proportionate and justified, and the actions being taken to improve results and to protect the value of members’ accrued rights”.
The proposed change is part of a package of supplementary pensions measures presented on Thursday by Maria Luis Albuquerque, commissioner for Financial Services and the Savings and Investment Union.
An earlier draft of the revised IORP II Directive seen by IPE said a pension fund “shall promptly inform its members and beneficiaries” in case of underperformance, in addition to the national regulator. This requirement has been deleted from the final version of the proposal that was published on Thursday.
The new article 41a of the revised IORP II Directive also requires pension funds to monitor their performance against benchmarks established by their national regulator.
“Our conversations with stakeholders revealed that the fee cap was impeding the offer of the PEPP”
Maria Luis Albuquerque, commissioner for Financial Services and the Savings and Investment Union
The IORP II review also proposes to make it easier for pension funds to merge, “by simplifying cross-border procedures and transfer rules”.
Auto-enrolment
As part of the reform package, the European Commission is also recommending that member states implement auto-enrolment in a supplementary pension product for all workers, with the freedom for individuals to opt out. According to Albuquerque, only 20% of EU workers currently participate in an occupational pension scheme, with an additional 18% saving in a personal pension product.
“Our objective with this recommendation is to address that pension adequacy is not guaranteed with the current situation,” the commissioner said during a press conference following the presentation of the Supplementary Pension Package.
Albuquerque encouraged member countries to learn from “existing good practices in the EU and lessons learned from other countries”.
The Commission also issued recommendations for member states to implement pension tracking systems and pension dashboards throughout the EU; the recommendations are non-binding.
PEPP 1% fee cap scrapped
Separately, the European Commission announced some important changes to the Pan-European Personal Pension Product (PEPP) regulation, in an effort to improve take-up.
Following advice from European pension regulator EIOPA, the Commission is proposing to scrap the 1% fee cap for the PEPP.
“Our conversations with stakeholders revealed that the fee cap was impeding the offer of the PEPP. That was an issue,” said Albuquerque.
The Commission also wants to remove the mandatory advice requirement for a so-called “Basic PEPP” that should consist of at least 95% of assets of listed equities and bonds. The obligation to obtain advice will be maintained for so-called tailored PEPPs that can invest more in illiquid assets.
The requirement to offer national subaccounts in at least two member states will also be scrapped, according to the proposal.
The Commission also wants to open up the PEPP to workplace use, heeding a call for this from organisations such as Cyprus-based LifeGoals Financial Services, one of two firms currently providing PEPPs.
Insurance Europe welcomed the review of the PEPP regulation, hailing it as “an opportunity for a strategic reset”.
Nicolas Jeanmart, head of personal and general insurance at the lobby group, said: “We’re pleased to see several important changes proposed in the PEPP framework. The removal of the fee cap and mandatory compartments represents a significant improvement.”
EFAMA, the European asset management association, also voiced strong support for the removal of the fee cap and mandatory advice for the basic PEPP.
“This will substantially improve its viability and availability,” the organisation said in a press statement, although expressing a requirement to rely exclusively on independent financial advisers if an investor wants advice anyway.
“We are concerned that this requirement could significantly limit the PEPP’s accessibility and ultimate market success, given that independent advisers represent a small fraction of the EU market,” it said.
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