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Challenges posed by the ageing EU population for the financial sector - Economic and monetary challenges

Towards a EU Single market for personal pensions

By Bernardino Gabriel - Chair, European Insurance and Occupational Pensions Authority (EIOPA)


The roles of public, occupational, and personal pension vehicles in each of the 28 Member States diverge significantly. Pensions tend to be embedded in national social and labour law, which makes them different from other products. Some countries have a strong second pillar of occupational pensions; others have built up more third pillar private pensions and quite a number of countries have yet to develop strong complementary pension systems beyond the public pay-as-you-go social security regimes. Additionally, the pressure on public finances has been aggravated by demographic and economic factors.

The consequent challenges at the level of state pensions and the fact that occupational pensions continue to have a reduced level of coverage in many member states has shifted responsibility to individuals to save for a retirement income through individual pension arrangements. Choosing a pension is a critical financial decision for a consumer, since personal pension products exist to provide their holders with the financial means to live after retirement. Thus, among the different consumers of financial services personal pension plan holders are one of the most vulnerable consumer groups.

It is high time to assess the opportunities and the potential of an EU approach towards personal pensions. The consideration of the relevant regulatory possibilities has already been the focus of our work for some years. Inter alia EIOPA has been investigating the possibility of a Pan-European Personal Pension Product (PEPP) with a defined set of regulated, flexible elements. EIOPA believes personal pensions will only deliver on the promise of enabling adequate replacement rates in the future, if those savings are safe, cost-effective, transparent, and sufficiently flexible to accommodate the current economic and labour market environment.

Such a product not only aims at higher levels of retirement income and pension adequacy but it also has the potential to contribute to the Capital Markets Union by supporting the supply of long-term capital. As such, it will present another possible source of long-term investment for the European economy, its growth and creation of jobs. EU citizens will benefit from more standardised and simple retirement savings products. This relieves consumers of the need to perform in-depth analysis of investment strategies and different financial instruments.

A single market for personal pensions will be advantageous not only for consumers and providers, but for the broader EU economy.

EIOPA came to the conclusion that such a product would need to exhibit standardised features, such as “information provision based on the proposal of a Key Information Document (KID) within the Packaged Retail Insurance and Investment Products (PRIIPs) framework”, “limited investment choices including default investment options”, “regulated, flexible, biometric and financial guarantees”, “regulated, flexible caps on cost and charges” and “regulated, flexible switches and transfer of funds”.

Further work should be done to build up concrete “product pilots” and the related prudential regulatory framework. In order to allow for long term investment strategies and for consumers to benefit from a certain degree of security and more stable returns, appropriate limitations to short term liquidity will need to be considered.

To summarise, a PEPP can increase consumer protection, transparency and improve outcomes for citizens. Pension providers will be enabled to offer more cost-effective products EU-wide that will allow for successful cross-border selling. Thus, a single market for personal pensions will be advantageous not only for consumers and providers, but for the broader EU economy.

Still, due to the current fragmentation and lack of harmonisation in the personal pensions market, the creation of an effective PEPP will require a constructive approach from Member States and from the different sectors that might offer personal pensions. As always the devil is in the detail and we will need to work closely with a range of stakeholders to ensure that we get the balance right.