The inclusion of advice costs into a fee cap applying to pan-European personal pension products, or PEPP, could hinder the profitability for money managers offering these savings vehicles, the European Fund and Asset Management Association warned Wednesday.
The new category of defined contribution plan was launched in 2019 to enable European gig economy workers to save for retirement in a single, portable plan. PEPPs allow workers to save in one European country while working in another.
These plans currently have a 1% fee cap that includes the manufacturing, management, administration and distribution costs associated with the plans, which are absorbed by managers offering the PEPP. Under new PEPP regulation which has been endorsed by the European Commission, this fee cap would also include the cost of advice associated with the plans.
The European Council and Parliament are yet to approve the PEPP regulation.
EFAMA warned that the European Commission's decision to include advice will prevent providers from coming to the market with strategies to manage PEPP investments by making them unprofitable for managers.
The type of advice required under the PEPP regulation is personalized to individual participants, the association said. The money management industry wants the advice component to be excluded from the fee cap to allow time for low-cost technology advice providers to develop high-quality personalized advice options that can be applied to 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," Tanguy van de Werve, director general of EFAMA, said in a news release.