19 July 2013

Insurance Europe: Consumer protection in pensions requires different approach

EU-wide certification schemes and voluntary codes are not the right tools for improving consumer protection in pension products across the EU, Insurance Europe said in its response to a European Commission staff working document on consumer protection in third-pillar (private) retirement products.

Moreover, Insurance Europe believes that such one-size-fits-all solutions will be infeasible due to the substantially different product designs for pensions and the different types of providers active across the EU.

Insurance Europe urges the EC to await the outcome of discussions on other EU regulations — such as the Packaged Retail Investment Products (PRIPs) Regulation, the review of the Insurance Mediation Directive (IMD 2) and the review of the Markets in Financial Instruments Directive (MiFID 2) — before undertaking further initiatives, as these regulations could all have an impact on consumer protection in third-pillar pensions.

Insurance Europe strongly believes that all EU Member States would benefit from having multi-pillar pension systems. These have the advantage of diversifying risks since the factors that affect labour variables — and hence the first pillar — are not perfectly correlated with factors that affect financial variables, which determine the performance of second- and third-pillar retirement systems. For example, funded pension schemes can mitigate the risks of a lower dependency ratio, while unfunded schemes can mitigate the risks of a low interest rate environment but no system can respond to every challenge alone.

In Insurance Europe’s opinion, a clear support for multi-pillar systems does however not mean that the same pension systems or products should be promoted all over the EU, as pensions have a strong national component and member states have the prerogative as regards the organisation of their pension systems, including the role of each of the three pension pillars. In particular, pension products are closely linked to national social and labour law. Additionally, the form and structure of a pension is shaped by and dependent on tax legislation, which is a responsibility of Member States. These specific features of pensions have to be acknowledged and duly taken account of when policy recommendations are formulated in specific areas, including in the consumer protection field.

Furthermore, a difficulty often arises in the pension area as many concepts can have different meanings across the EU. This is the case for instance for the definition of the three pillars, the differentiation between the pillars, and the definition of other retirement related terms, such as “plan”, “scheme”, “product” and “institution”. Insurance Europe therefore encourages all parties involved in the different workstreams on pensions to coordinate closely and agree on a common terminology.

Additionally, Insurance Europe notes that DG SANCO’s description of the existing national frameworks seems to take the fragmented situation as evidence of insufficient consumer protection. In Insurance Europe’s opinion, this is rather a reflection of the fact that consumer protection is in general tailored to the products offered, which vary along national lines.

Finally, Insurance Europe stresses that third-pillar pensions can be provided by a number of different entities and that discussions are currently taking place at EU level, such as those in the context of Packaged Retail Investment Products (PRIPs) Regulation, Insurance Mediation Directive (IMD 2) and Markets In Financial Instruments Directive (MiFID 2), which will have an impact on the provision of third-pillar pensions across the EU. Therefore, Insurance Europe suggests waiting for the outcome of these discussions, including discussions on their scope, in order to avoid overlaps and possibly contradictions between the different initiatives.

Full position paper

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