The European Fund and Asset Management Association (EFAMA) regrets that the European Commission has decided to endorse EIOPA’s proposal to include the initial cost of advice under the 1% fee cap for the Basic PEPP (pan-European Personal Pension Product).
The PEPP
has the potential to play an important role in delivering
retirement savings to millions of European savers, while at the
same time contributing to the success of the CMU through the
creation of new pools of long-term capital that can help finance
the European economy.
The
investment management industry is keen to manufacture PEPPs that
will deliver these benefits. However,
there is a
real risk that the decision to include the
initial advice
cost under the fee cap will prevent potential providers from
developing an economically viable business model for the PEPP,
thereby jeopardising its take-up.
Delivering
the type of advice required under the PEPP Regulation – a
personalised recommendation, taking into account in particular an
individual’s accrued retirement entitlements – entails costs that
will not be recouped if they are covered in a 1% fee cap that also
includes the cost of manufacturing, managing, administrating and
distributing the product. If the current policy intention is left
unchanged, it is highly unlikely that a
competitive pan-European market delivering high quality, good value
pension products will emerge.
Given
that there is no scope for advice to be anything less than a
personal recommendation, with all the fact-finding – and associated
costs – that this entails, the most efficient approach to avoid the
failure of the PEPP would be to exclude the initial cost of advice
at least until the first review of the fee cap.
EFAMA strongly believes that
the PEPP
Regulation allows the exclusion of the one-off
initial advice from the
fee cap. A
PEPP saver will
choose between a Basic PEPP or an alternative investment option, with
the understanding that ‘the
costs and fees for the Basic PEPP shall not exceed 1% of the
accumulated capital per annum’. Before
making this choice, the saver will
receive all
the relevant
information and advice. This means
that the
advice process can be separated from the cost of the
Basic PEPP, and its cost can be excluded from the fee cap. Following
this approach would have several distinct benefits:
It would ensure PEPP
availability for savers across Europe on a fully advised
basis.
It provides full cost
transparency for all aspects of the PEPP, manufacturing,
distribution and advice.
It addresses concerns
about the cost-efficiency of the Basic PEPP by limiting the
exemption from the cap to the initial cost of advice and confirming
that the product manufacturing and distribution costs are included
in the cap.
Postponing the potential
inclusion of advice in the fee cap will also allow time for the
nascent technology-enabled advice market to develop low-cost,
high-quality, personalised advice offerings suitable for the
PEPP.
Tanguy
van de Werve, EFAMA Director General, commented: “While
we welcome the regulatory technical standards specifying
the requirements on the information documents and the
risk-mitigation techniques, we are concerned that the all-inclusive fee cap will make it uneconomical
for potential
providers to offer the PEPP.”
“If
the PEPP remains a fine idea without a future, the real losers will
be the citizens of Europe, in particular those with inadequate
future retirement incomes, who will not be able to reap the
initially intended
benefits of the PEPP in terms of product choice, quality of advice
and value for money. It is now for the Council and the European
Parliament to decide whether such a policy outcome is desirable and
in line with the objective of the Regulation”,
he added.
EFAMA
© EFAMA - European Fund and Asset Management Association
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article