The European Commission is seeking stakeholder views on the existence of any investment rules imposing “overly restrictive limits on investments in alternative assets” as part of a consultation on supplementary pensions.
The consultation also explores the issue of scale in European pension funds, an issue the Commission has already made clear it wants to address.
Launched on Friday, the consultation – described as “targeted” – is split into two.
The first section relates to areas of national competence where the Commission may issue recommendations to member states: automatic enrolment, pension tracking systems, pension dashboards and the implementation of the prudent person principle by pension funds.
The second section is essentially the consultations about the IORP II Directive and the Pan-European Personal Pension Product (PEPP) regulation. One pension fund policy specialist observed that the Commission seemed to be still scoping the issues rather than asking about potential solutions.
The EU executive is due to present legislative proposals for IORP II and PEPP in the fourth quarter of this year, kickstarting the bloc’s legislative procedure.
In connection with the consultation, the Commission is today hosting a stakeholder forum billed as “a reality check dedicated to exploring emerging trends in retirement provisioning across the European Union”.
The new consultation follows the Commission outlining its plans for supplementary pensions in the Savings and Investments Union strategy from March. The Commission said it is also aimed at addressing shortcomings identified by the European Court of Auditors in a recent report.
According to the 26-page consultation document, the Commission’s guiding principle for any forthcoming initiative on supplementary pensions is to increase uptake in supplementary pensions, “with a view above all to increase financial security in retirement, and also to reinforce the supplementary pension sector as a long‑term investor”.
The Commission indicated that the main aim of the consultation with regard to the IORP II Directive is “to explore how streamlining the framework for supplementary pension provision can increase trust, advance better investor returns (including by way of gaining exposure to a broader range of asset classes) while increasing the risk management capacity for doing so, and create more transparency on cost and returns”.
IORP II: Scope, scale, unlisted assets
With regard to the matter of scale in the European pension fund sector, the Commission said that EU pension funds of relatively small scale “may limit their ability to diversify portfolios, invest in long‑term assets, and achieve better risk‑adjusted returns, as well as offer competitive costs”.
It asks respondents for views on how the review of the IORP II Directive could contribute to the potential scaling up of workplace pension schemes, such as by fostering best practices in the build-up of scale, for example via asset pooling or fiduciary management.
The Commission also asks questions related to the prudent person principle and pension funds’ low exposure to unlisted assets, for example, if stakeholders consider that there are “any national quantitative or other type of investment rules imposing overly restrictive limits on investments in alternative assets”.
“If yes, what is the rationale for such limits and should member states continue to be allowed to impose such limits, despite the reliance on a risk‑based supervisory approach?” the consultation continues.
Another issue raised by the Commission in the consultation is whether the scope of the IORP II Directive should be expanded.
It said that in several member states, supplementary pensions are often provided through non-IORP organisations that also operate on a funded basis and at their own risk, but they usually fall outside the scope of any EU prudential legislation.
Streamlined PEPP
With respect to the PEPP, the Commission said the consultation aims to collect information about whether the PEPP Regulation should be reviewed to introduce a streamlined and accessible default option.
In particular, it seeks inputs on how to simplify the existing Basic PEPP, including by facilitating its digital distribution and exploring the possibility of enrolment through the workplace.
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