Later this month, the European Commission is expected to propose a plan for new Europe-wide private pension products, City A.M. understands.
The commission began consultations last year on its Pan-European Personal Pension Product (PEPP), which is intended to act as an additional income alongside public or workplace pensions.
But industry trade body Insurance Europe has noted today that, unless done properly, the move to encourage more people to take out private pensions could end badly.
“Insurance Europe welcomes the project of a Pan-European Personal Pension Product as a way to increase both the share of the population with private pensions and the allocation of funds to long-term investments,” it said in a report.
However, it added that the product needed to be “truly long-term” to be suitable as a source of retirement income.
“Consumers should be incentivised to save for a long period, ideally until retirement, for instance through minimum investment periods,” it said.
Insurance Europe was also concerned about the security afforded to pensioners – both in terms of outliving their savings, and with respect to the security of their capital in the pension product.
Insurers are the main providers of private pensions, and the new European Union insurance regulatory regime – Solvency II – was specifically designed to protect their customers.
It introduced measures such as stringent capital requirements, which Insurance Europe noted should be applied to any other financial institutions who try to offer the PEPP.
Creating a pan-European pension product will be a mammoth task, as national practices vary in areas such as pay-outs, annuities and how savings are converted to income.
Tax incentives could be vital, Insurance Europe added, since they “play an important role in an individual’s decision to postpone consumption and instead save for retirement”.
Yet the trade body recommends that the PEPP need not be applied identically across countries.
“The roles of and interaction between statutory, occupational and personal pensions are unique to each member state, shaping national pension markets for decades. It is therefore natural that personal pension products differ substantially across the EU,” it said.
Insurance Europe recommended that the PEPP providers must be able to adapt the features of their products to each individual country.
The new pension product is another element of the Capital Markets Union (CMU) plan, a pet project of European Commission president Jean-Claude Juncker designed to boost cross-border investment in the EU.
Yet even after the proposal is published later this month, the PEPP will not be available for around a year and a half.
It must be discussed by the European Parliament and the Council of the European Union, who will agree on a final text, before passing into law and finally reaching consumers.