The European Insurance and Occupational Pensions Authority (Eiopa) defended the creation of a pan-European pension product (Pepp), against mounting criticism from the retirement industry.
Aimed at tackling the funding crisis facing many European nations, the Pepp has been designed to encourage more people to save into a standardised cross-border private pension, said the regulator.
“A harmonised legal framework for pan-European personal pension (Pepp) has the potential to deliver a truly integrated and competitive European internal market,” wrote Eiopa in its annual report.
Similar to stakeholder pensions, which were introduced by the UK government in 2001, the product will include features such as a cap on fees, the ability to switch products and providers, default ‘core’ investment and limited investment choices.
Michael Lodhi chairman of Luxembourg-based Spectrum IFA Group, told International Adviser last week that he predicts the product will suffer the same “underwhelming” success as stakeholder pensions.
“A balance between fair reward for the adviser and tax relief for the investor needs to be struck if such a product is to get off the ground and be promoted by firms."
In 2003, the Association of British Insurers (ABI) labelled the pensions “a massive failure”, after research found that 80% of the 350,000 schemes set up were “empty boxes”, while just 13% included employer contributions.
“The danger with a cap on costs and fees, meaning commissions as well, is that intermediaries will not sell something unless they are well paid,” said Lodhi.
However, James Pearcy-Caldwell, co-founder of UK-based IFA firm Aisa, said he welcomes a single market pension product, although he warns there must be a balance between low fees and “fair reward” for advisers.
“A balance between fair reward for the adviser and tax relief for the investor needs to be struck if such a product is to get off the ground and be promoted by firms.
“This has been proven several times in the UK, the most recent being low cost stakeholder pensions which failed in its objectives,” he told IA.
He also warned that the Pepp needs to be seen as “attractive and good value for money”, pointing out that if it is not compulsory, those on modest incomes will be less likely to pay fees.
“Our experience is the concept of pensions has to be sold. Given the lack of consumer saving for retirement in the EU, an initiative to encourage long term saving should be actively encouraged,” said Pearcy-Caldwell.
Last month, the Pepp was slammed by Insurance Europe, the trade body that represents the European insurance and reinsurance industry, as “poorly designed”. It lambasted Eiopa’s framework for failing to specify exactly how pensioners will be able to withdraw money – an essential feature, it claims, for the Pepp to be considered a “true pension product”.
However, Eiopa defended its guidelines, saying that they will “ensure a level playing field between providers by removing existing barriers to cross-border business and facilitate cross-border offering of Pepps to consumers and a multi-pillar approach to pension saving.
“Eiopa believes that a simple, transparent, cost-effective and trustworthy product will be crucial to encouraging citizens to save for their retirement,” the watchdog added.
The regulator has been consulting on the Pepp since early this year, publishing its final advice to the European Commission in April.