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I believe that there are merits in developing an EU-wide framework for the activities and supervision of individual retirement savings, containing both prudential and consumer protection measures. Improving consumer information and protection is necessary to enhance citizens’ confidence in financial products for retirement savings.
Personal pension plans should be focused on the long-term nature of their objective (retirement savings), avoiding the traps of the short-term horizon. They should be based on a simple framework, allowing for reduced cost structures and be managed using robust and modern risk management tools. They should rely on clear and transparent governance structures and provide full transparency to its members.
A well designed and structured 3rd pillar market could also play an important role in the EU economy by assuring a focus on long-term investments and, thus, fostering sustainable growth.
Importance of personal pensions
The pressure on public finances with the consequent challenges on the level of state pensions and the fact that occupational pensions continue to have a reduced level of coverage in many Member States shifts the responsibility to individuals to save for a pensions income through individual pension arrangements.
Among the different consumers of financial services, I would call personal pension plan holders the most vulnerable consumer group. Choosing a pension is a critical financial decision for consumers: personal pension products are characterised by the fact that their explicit aim is to provide their holders with the means to live after retirement. This specific aim sets pension products apart from ‘regular’ financial products. The fact that most personal pension products can be bought on a voluntary basis implies that a consumer has a personal responsibility in providing part of his retirement income.
This calls for particular care on the information to be provided to consumers. In this context I would like to mention EIOPA’s Report on Good Practices relating to the provision of information for Defined Contribution schemes that we issued in February this year. We call this publication the “Max Report” because the hero of our report, called Max, is an average citizen who has limited time and motivation to be involved in long-term retirement planning, does not like complexity, tries to reduce it and often uses rules of thumb to process information quickly. So as EIOPA’s Max-report has shown, consumers are not ‘homo economicus’. The fact that pension products, both occupational and personal, are difficult to understand by nature requires that providers of personal pension products only offer products that are ‘fit for purpose’.
EIOPA’s aim is to advise on an EU-wide legislative framework that would enable all parties to fulfil their respective responsibilities. Creating a single market in the field of personal pensions is essential in that respect.
EU cross-border products
In its White Paper on pensions, the European Commission committed itself to raise the quality of third-pillar retirement products and improving consumer information and protection standards possibly with an EU certification scheme for such products. Over the past few years, personal pension plan holders have been confronted with products that did not deliver the results needed to provide for an adequate standard of living after retirement. In those cases where this was caused by product characteristics, action is needed. EIOPA will therefore put great effort into delivering advice on the characteristics a personal pension plan should and, perhaps more importantly, should not have.
As you may have read in our Discussion paper, product regulation EU-wide is fragmented. Some countries leave it up to providers to develop products, with supervisors supervising ‘along the way’. In other countries, a product has to be approved before it can be marketed. EIOPA has not yet reached definitive conclusions with regard to what characteristics a personal pension product should have. We are convinced, however, that a product should be understandable, fair and that charges should not be disproportionate. Pension products should instil confidence in consumers to buy it; be it in their own country or in another Member State.