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EIOPA finalises vision on pan-European personal pensions

The European Insurance and Occupational Pensions Authority (EIOPA) has published its final advice on the development of a so-called 2nd regime for pan-European personal pension products (PEPPs) and launched a fresh consultation on the back of the recommendations.

The new consultation is on how a standardised PEPP could serve as the basis for an EU market for personal pensions products in general.

The advice and related questions for stakeholders are set out in a ‘Consultation Paper on EIOPA’s advice on the development of an EU Single Market for personal pension products’, released yesterday.

It marks the first time EIOPA has consulted on its advice, according to a spokesperson.

The paper is the latest step in a European Commission (EC)-led investigation into the potential development of a EU market for personal pension schemes, envisaged as a third-pillar retail product.

It takes into account feedback received as part of a consultation carried out last summer on the creation of a standardised PEPP, which in turn built on a preliminary report on PPPs by EIOPA in 2014.

Last summer’s consultation and the latest consultation will allow EIOPA to respond to a call for advice by the EC in July 2014.

Among responses to EIOPA’s PEPP consultation last summer were a warning of the risk of “regulatory arbitrage” from Brussels-based industry association PensionsEurope.

The Dutch government rejected the standardised PEPP idea, while the Dutch Pensions Federation questioned the added value of a PEPP.

However, Hans van Meerten, a professor of international pensions law at Utrecht University, flagged new opportunities arising from PEPPs for Dutch pension providers, pension funds and insurers.

More recently, investment fund association ICI Global made the development of a pan-European PPP one of its key recommendations in its response to the EC’s call for evidence on the regulatory framework for financial services.

It said it was “fully supportive” of the Commission’s work to develop such a product, highlighting the benefits of pooling assets on a cross-border basis for “EU savers and the EU’s capital markets”.

EIOPA addressed concerns about regulatory arbitrage in its new consultation paper, noting that avoiding it is one of the reasons why it settled on a standardised PEPP regulated by a complementary second regime rather than harmonising existing Directives.

“To achieve a true Single Market for pensions,” it said, “and to overcome barriers to use the efficiency gains of the Single Market and ensuring a high level of consumer protection, it is therefore EIOPA’s view that only a second regime PEPP will be capable of realistically tackling the currently under-developed EU market for cross-border pensions.”

Proposed PEPP characteristics

The supervisory body said research it had conducted, including last summer’s consultation, confirmed its view that a standardised PEPP with a defined set of regulated, flexible elements would be the best way forward.

Pan-European Personal Pension Product (PEPP)
  
Standardised ElementsInformation provision
 Default “core” investment option
 Limited investment choices
  
Flexible ElementsGuarantees
 Cap on cost and charges
 Switching

It also developed its views on the product, however.

It is now proposing PEPP features such as standardised information provision based on the proposals of a key information document (KID) within the PRIIPs (Packaged Retail and Insurance-based Investment Products) framework, and standardised limited investment choices and a single default “core” investment option.

The investment elements would be to take into account the link between accumulation and decumulation, according to the consultation document.

Industry group Insurance Europe said it welcomed EIOPA’s acknowledgement that a PEPP should be “a true pension product” but questioned the proposed treatment of minimum investment periods and the decumulation phase – “the main characteristics of a pension product”.

It said the product envisaged by EIOPA needs to feature minimum investment periods, and the decumulation phase given “appropriate consideration” in the product design.

“Otherwise, the PEPP could end up being more like a short-term investment, rather than a long-term pension product,” it said. 

“Of concern is the link that EIOPA’s advice makes between packaged retail and insurance-based investment products and the proposed PEPP, given that the two are not easily compatible.”

Consultation: From PEPP to PPPs

EIOPA is now seeking views on whether and how its PEPP recommendations could be applied to personal pension products (PPPs) in general.

The aim, it said, was to identify how PPPs – and possible EU-wide frameworks for these – could be developed “so they can contribute to meeting the challenges of an ageing economy, the sustainability of public finances and the provision of adequate retirement incomes and foster increased long-term investment”.

EIOPA is asking for feedback particularly in relation to:

  • Governance standards for providers
  • Harmonised basis for product governance rules
  • Harmonised basis for distribution rules
  • Harmonised disclosure rules
  • Possible specific additional capital requirement
  • Further powers for national supervisors

EIOPA noted that PPPs were one of the priority measures for the European Commission’s Capital Markets Union action plan. 

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