“The European insurance industry fears that a poorly designed pan-European pension product (Pepp) will bring benefits neither to consumers nor to the EU economy,” said the organisation on its website.
Europe-wide single pension product
The remarks were in response to the European Insurance and Occupational Pensions Authority’s (EIOPA)’s recent advice to the European Commission (EC) on how to create a single market for the Pepp.
The product aims to tackle the pensions crisis facing many European nations by encouraging people to save into a standardised cross-border private pension. An ageing population coupled with low birth rates and low savings rates has raised serious concerns over how to fund the retirement income of future generations.
No withdrawal specified
Insurance Europe said that although it welcomes the EC’s bid to increase sales of private pensions, EIOPA’s framework fails to specify exactly how pensioners will be able to withdraw money from their Pepp – an essential feature, it claims, for it to be considered a “true pension product”.
“Pepps should include life-long retirement income (e.g. annuities) as an option consumers can choose. This flexibility would fit countries that have no legal requirements for providers to offer a life-long pay-out,” said the trade authority.
‘Second regime’
Insurance Europe also called on the EC to carry out an “in-depth legal analysis” into the difference between existing national legislation and proposals to create a new separate regulatory framework that would only apply to Pepps.
In a consultation paper published in February, EIOPA said the Pepp would be governed by its own laws – dubbed the ‘second’ regime – to sit alongside regulatory systems that already apply to personal pension products (PPP).
Insurance Europe criticised the move, arguing that the framework does not account for popular product features such as profit-sharing tools or surrender options.
“PPPs already being sold in Europe meet the heterogeneous needs of consumers, while respecting areas of national competence such as taxation, social and labour law as well as general good rules.
“Therefore an excessively prescriptive European regime would fail to fit the current market and national frameworks and would undermine the overall policy objective,” it said.
Cap on costs/fees
The trade body also condemned EIOPA’s plans for Pepps to include a cap on fees charged by providers, arguing that firms “should be free to compete in this area”.
“The Pepp’s costs and charges should not be capped, even for default investment option. Consumers have to be provided with clear and concise information as to the costs and charges of their products,” said Insurance Europe.
Under the proposed system, vehicle will include a defined set of regulated and flexible features. Flexible features, in addition to a cap on fees, include the ability to switch products and providers and will be matched by more standard elements such as information provision, default “core” investment and limited investment choices.
Efama
Last month, the European Fund and Asset Management Association (Efama) urged the EC to push ahead with plans to create a Pepp – as part of a wider intitiative to form a single market for all financial retail products.
The organisation, which represents the investment management industry in Europe, announced that although it “strongly supports” moves by the EU to make financial products such as mortgages, life insurance and investment funds available to all consumers across the continent at the same price, it urged the body to go further and introduce a standardised cross-Europe personal pension vehicle.
