Money managers and consultants say that voluntary pan-European personal pension products could be dead on arrival with the watchdog European Insurance and Occupational Pensions Authority taking a tougher approach to its supervision.
The European Commission launched PEPPs in 2019 to simplify retirement saving for self-employed and mobile workers seeking employment across the European Union. Through a portable cross-border plan design for individuals, a PEPP was developed to help grow pan-European workplace defined contribution assets in Europe as an alternative to occupational multiemployer cross-border plans, which were suffering from low demand because they failed to attract much interest from corporate employers.
Aiming to increase the number of Europeans who are enrolled into personal occupational savings plans above the current 27%, industry observers welcomed a PEPP as a bridge between personal and workplace retirement plans that can help with complexities related to local laws. Money managers, insurance companies, banks, occupational pension funds and investment firms are eligible to offer one savings vehicle in all European markets under the current PEPP rules. Under these rules, savers would be defaulted into a safe investment option with a fee capped at 1% but could choose different risk-return investment options and a decumulation strategy.
But under a new proposal published in December, EIOPA wants the investment strategies of PEPPs to at least target the long-term risk-free rate calculated using the ultimate forward rate set by the authority, which for 2020 stands at 3.75%.
Christian Lemaire, global head of retirement solutions at Amundi in Paris, said in a telephone interview that EIOPA's criteria could limit money managers' will and ability to bring a PEPP to savers.
Mr. Lemaire said that EIOPA's proposal to utilize ultimate forward rate as a proxy for the long-term risk-free assessment would make PEPPs impossible for managers to launch in the marketplace because this rate is far above what is currently observed in the financial markets.
In its response to the consultation on EIOPA's proposal, European insurance federation Insurance Europe said the ultimate forward rate is not an adequate measure to generate assumptions for performance and plan participants' benefit projections. Benefit projections are required to be supplied by managers to plan participants under the Institutions for Occupational Retirement Provision II directive.
When adding risk premiums for other asset classes above the risk-free rate, this means PEPP investments will need to deliver around 6% return annually, he added.
Mr. Lemiare also added that a PEPP requires full personal advice that is not economically viable with the 1% fee cap.
Noting that the PEPP was projected to be a successful development because of the popularity of local personal retirement products in some European countries, particularly Germany, Gerd Gebhard, director at consultant PECOMA Actuarial and Risk SA in Luxembourg, warned that if the product is overregulated early on, few managers will be interested in launching a PEPP for the entire European market.