A first step on a long journey towards tackling the pensions gap: still more work is needed
Brussels, 29 June 2017 - Finance Watch welcomes the Commission’s proposal for a regulation that sets out common principles for a Pan-European Personal Pension (PEPP) product. We are supportive of the general intention of offering a safe, simple and transparent product that is accessible on a pan-European basis and, in particular, of some of the features of this new product that has been presented today:
* The proposal provides for a default option with capital protection and a limited number of alternatives, as suggested by Finance Watch.
* Non-default options are subject to suitability testing – although we are missing the concept of a formal pathway for guiding investors, and advisors, along the decision-making process.
* Portability is provided across the EU, following a three-year phase-in period, by way of national compartments – the complexity of that approach will need to be mitigated by increased transparency to ensure that savers can make full use of the benefits of this feature.
* The product allows savers to switch providers at regular intervals and across borders – the proposed cap on switching fees is too high, however, and the basis for calculating it should be reformulated.
* The product comes with a KID-style information document including metrics on past performance – we would expect further standards on these metrics and relevant benchmarks in due course to ensure transparency and comparability.
The proposal does, however, fall short of our expectations on a number of points:
* It is missing important features that we would expect from a genuine pension product: in particular it does not address longevity risk and does not guide savers towards a decumulation strategy that would provide for an income, i.e. in the form of an annuity. Member states are not given the choice to limit decumulation options or to promote prudent, income generating strategies over lump-sum pay-outs.
* The proposal stops short of providing for an explicit capital guarantee as part of the default option and does not provide sufficient detail on the specifics of the proposed capital protection.
* There are no limitations on the level of fees charged for either the advice on the sale of a PEPP or for its ongoing management. Caps, in particular on advisory fees at the subscription stage could prevent potential abuse and encourage take-up of the product. The regulation should, at least, set out a framework for the calculation of these caps, to be applied by the member states.
* To support the product’s portability features, providers should be required to include, as part of their periodic reporting, a consolidated overview of savers’ accumulated capital and benefits including all relevant national compartments.
* Lastly, the framework defers to sectoral legislation on setting prudential standards for PEPP providers. Given the diversity of regimes this could lead to an uneven level of protection for savers and an unlevel playing field among providers.
Finance Watch invites the EU legislators to enter into a constructive discussion of this proposal and the proposed improvements and calls upon on the national legislators to co-operate on the necessary supporting and implementing measures, in particular in the field of taxation, to make this initiative a success.
We also encourage policymakers to continue exploring additional measures, beyond the PEPP, in order to maintain adequate levels of pensions and preserve the European model of the Welfare State. Even with a successful implementation of PEPP, we doubt that Pillar 3 provision will be sufficient to meet the huge challenges facing pensions provision in the EU.