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03 November 2016

Insurance Europe: PEPP must be long-term product that supports citizens in saving for retirement


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Insurance Europe has responded to a European Commission consultation on personal pensions, where it acknowledged the importance of examining ways of encouraging and supporting citizens in saving for their retirement.


Insurance Europe acknowledges that Europe faces a major challenge in ensuring adequate retirement income for its citizens. Insurance Europe believes that mutually reinforcing pension pillars will become increasingly important in responding to this challenge. Personal pensions, ie the “third pillar”, play a key role in today’s pension landscape. In the future, this role is likely to become even more important. With a long track record of tackling demographic challenges, life insurers are major providers of personal pension products that consumers can trust.

Personal pensions are also very important as a driver for long-term growth. With this in mind, Insurance Europe welcomes the EC’s interest to link the future of pensions to its goal of strengthening and diversifying the financing of the EU economy through a Capital Markets Union. Insurance Europe wishes to stress that achieving the objectives of the Capital Markets Union requires that private pensions have features, such as being long-term, that make it possible to allocate the funds to long-term investments. Long-term investments can only be made on the basis of long-term liabilities.

While sharing the Commission’s general objectives, Insurance Europe has strong reservations about its analysis and policy options to develop personal pensions in the EU. In particular, the EC’s proposals do not give proper consideration to key product features that have proven instrumental in providing European citizens with tailored retirement solutions. Moreover, the EC does not address the complex relations between the EU policy options and areas falling under national competence. The European insurance industry fears that a poorly designed regulatory initiative could bring benefits to neither consumers nor the EU economy.

Personal pensions are part of national pension systems

The respective roles of and interaction between statutory, occupational and personal pensions are unique to each member state. These aspects have been shaping national pension markets for decades and have resulted in national rules and specific products. It is therefore natural that personal pension products differ substantially across the EU. Likewise, it is not realistic to separate national personal pensions and the national circumstances on which they depend.

Consumers must be duly protected

Solvency II was specifically designed to ensure a high level of protection for customers of insurers, who are the main providers of personal pensions. This protection is ensured through a range of measures, including stringent capital requirements. Other financial institutions are not subject to the same rules. Therefore, Insurance Europe does not see how extending the provision of personal pensions to other types of providers would ensure a similar level of consumer protection, and even less so a “higher” level of protection, as envisaged by the Commission. From a regulatory point of view, there is a very high risk of an uneven playing field, to the detriment of consumers.

Proposed policy options require further work

The EC does not provide much detail about any of the proposed policy options. For instance, it does not explain how they would work in practice. In addition, the EC does not examine the complex interactions between these options and areas of national competence (eg tax law, contract law, general good rules and social and labour law). Insurance Europe welcomes the fact that the EC is carrying out an in-depth study on the legal and fiscal framework applicable to personal pension products in the EU and hope this will clarify outstanding issues.

The way forward: a pan-European personal pension product

Considering the EC’s proposed policy options, we believe that the concept of an EU personal pension product may be an appropriate solution to reach the EC’s objectives, provided it is based on EIOPA’s proposal for a pan-European personal pension product (PEPP). Insurance Europe maintains that this initiative — with all necessary improvements to it — may increase the volume of personal pension products sold throughout Europe and increase the allocation of funds to long-term illiquid investments. However, demand for this product in each market is likely to depend on its maturity and how issues related to taxation can be solved.

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© InsuranceEurope


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