Pan European Pension Product

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Your opinion counts! Do not leave the European pension to the insurance lobby

New pan-European pension

The European Union is committed to fight against old age poverty. Last year the EU introduced the pan-European personal pension product (PEPP) creating a single European market for personal pension. With the Pan-European pension product the EU is responding to changing demographics and the modern forms of labour, and embracing the opportunities of digitalisation. The PEPP sets a benchmark in terms of transparency, efficiency, security and flexibility. The PEPP will be complementary to existing national pension regimes.

Help to shape the PEPP

The European Insurance and Occupational Pensions Authority (EIOPA) has published a proposal on how to implement PEPP. Until 2nd of March EIOPA is seeking feedback from stakeholders on this proposal, i.e. every European citizen can comment, ask questions or make alternative suggestions. The details of EIOPA's proposal can be found in the consultation paper here.
Please find below a short summary of the most important topics. You can hand in your feedback directly or leave your comments below. We will review all comments and send a consolidated feedback to EIOPA. As a member of the PEPP expert panel to EIOPA Vantik founder Til Klein will bring in your view in the discussion. The insurance lobby has already positioned itself to prevent many of the planned innovative features (e.g. the cost cap).The topic is way too important to leave it to the insurance lobby.

Summary of key topics for you as consumer

Digital First

The regulation aims to put "digital first" and allows a fully digital disclosure and distribution. The goal is to engage consumers and savers and to provide a cost efficient solution. Digital disclosure could incorporate more engaging forms of media (e.g. video) and could even permit interactive elements, in order to make the information more appealing and easier to understand for consumers. PEPP providers or distributors are obliged to give the saver advice. At the start of a contract providers should advise about the investment options and the level of capital protection. At the start of the pay-out phase providers should advise on the type of pay-out schemes available. However, the PEPP regulation explicitly allows either fully automated or semi-automated advice (retirement-related demands and needs assessment; suitability assessment; personalised pension benefit projections). Online distribution, including automated or semi-automated advice, can help to reduce barriers to entry, create new cross-border opportunities, and ultimately reduce the costs of distributing the PEPP.

Pre-contratual Key Information Document (KID)

The standardised pre-contractual Key Information Document (KID) provides information that is required to understand the nature, risks, costs, potential gains and losses of the product and compare it with other PEPPs before signing the contract. It is not marketing material. The KID answers the following six questions:

  • What is this product?
  • What are the risks and what could I get in return?
  • What happens if provider is unable to pay out?
  • What are the costs?
  • What are the requirements in my country?
  • How can I complain?

You can find illustrative examples of the pre-contractual key information document here. What do you think of the designs? Are they understandable? Do they contain all relevant information?

Example A
Example B

Vantik’s view: More information does not necessarily mean more transparency. The document is overloaded and too complex to understand. This will result in yet another document consumers will completely ignore, leading to less instead of more consumer protection. The proposal prepared by the EIOPA tries to make the best of the regulatory directions. But we strongly encourage EIOPA to propose an adjustment of the regulation to the EU Commission. We suggest a super easy to understand one page document (first layer) that allows the saver to understand and compare different products. This can be accompanied by a more detailed document (second layer) that addresses consumers and experts who want to understand the product in depth.

Annual Benefit Statement

The annual Benefit Statement gives an overview of the performance and the projected pension income. Information from the Benefit Statement should enable the consumer to monitor the delivery and performance, compared to the information provided in the KID. It should highlight the effects of guarantees, the level of contributions, the role of inflation and the costs on the projected benefits. You can find illustrative examples of the annual benefit statement here. What do you think of the designs? Are they understandable? Do they contain all relevant information?
Illustrative Examples here
Vantik’s view: The document is far too complex and difficult to understand. Radical simplification is needed.

Cost Cap

One of the key features of the basic PEPP is a 1% cost cap on the accumulated capital per annum. This includes all cost for administration, asset management and distribution. The cost cap should provide for a level playing field and allow for full transparency of the costs. Any costs linked to additional features (e.g. payment in case of death) or a capital guarantee that are not required shall not be included in the cost cap. Vantik’s view: We strongly support the cost cap. We recommend to treat the costs for capital protection consistently, either in or outside the cost cap (see below).

Capital Protection

The basic PEPP aims at preserving the savers capital at retirement cover the contributions during the accumulation phase after deduction of all fees and charges. Depending on the type of capital protection there will be two types of basic PEPP.

  • For the Basic PEPP with a guarantee (type 1), providers will have a legal obligation to ensure that PEPP savers recoup at least the capital invested.
  • The Basic PEPP with other risk mitigation techniques (type 2) shall be consistent with the objective to allow the PEPP saver to recoup the capital, but without any legal obligation to recoup the capital.

According to EIOPA’s current proposal the cost of a type 1 capital protection as guarantee are not included in the cost cap, whereas the cost for type 2 capital protection with other risk mitigation techniques are included in the cost cap. Vantik’s view: Both approaches to protect saver’s capital, guarantees as well as alternative risk mitigation techniques, bear cost. But the cost efficiency might vary significantly. Alternative risk mitigation techniques might give a similar level of security as a guarantee but at much lower cost. This should be transparent to the saver, in order to choose between different levels of security at different cost. The current proposal is intransparent, very complex to regulate and favors traditional providers. In order to create a level playing field for all providers it is crucial that all capital protection techniques are treated equally either within the cost cap or as additional cost.

Sustainable Investment

PEPP providers are encouraged to allocate all or a significant part of their assets to sustainable investments. Furthermore, they are encouraged to consider ESG (environmental, social and governance) factors in investment decisions. But there is no obligation to invest your money sustainably. The key information document (KID) should contain information about the manner in which sustainability risks are integrated into the investment decisions behind the product. Vantik’s view: The EU commission has proclaimed the European Green Deal to make Europe the first first climate neutral continent by 2050. A core part of it is the European Green Deal Investment Plan, which will mobilise at least €1 trillion of sustainable investments over the next decade. Here the PEPP could be key to achieve this goal. Thus we propose to make sustainable investments mandatory for all PEPPs.

Right to switch

All providers should offer a Basic PEPP, a safe and cost-efficient product representing the default option. If the provider offers more than one investment option, a saver will be able to choose a different investment option after a minimum of five years. providers may allow savers to change their investment option more frequently. Also, the saver will be able to switch provider after a minimum of five years from the conclusion of the contract or after five years from the most recent switching. The provider may allow savers to switch providers more frequently.

Cross-border portability

Savers can continue to contribute to the same PEPP when they change residence in another EU Member State, either by opening a PEPP sub-account with the same provider in their new Member State of residence (in case such option is available with their PEPP provider) or continuing to contribute to their existing PEPP sub-account (due to the different tax regimes across member states, the saver will have a sub-account per country). In case their PEPP provider does not provide for such an option in the new Member State of residence, savers have the right to switch provider immediately and free of charge. But a PEPP can be offered only on the EU territory. In the pension phase, pensions can be paid out in a different location from where the product was purchased.

 

 

The entire document you can find here

What is your opinion

Everybody should participate!