Mike Morrison: why would we want less flexible market?

In an alternative world to the UK Budget, The European Insurance and Occupational Pension Authority published a consultation paper on the creation of a standardised Pan-European Personal Pension product on 3 July. The paper was entitled “CP-15-006 Consultation on the creation of a standardised Pan-European Personal Pension product”. Europe has long dabbled with pensions and there is a cross border regime for occupational pensions (IORPS).One of the fundamental principles at the centre of the EU ideology is the freedom of movement of people, goods and services, and obviously retirement and pension rights have long been an essential part of this.Over time we have had various pension reports and consultations ranging from the ‘specific’ (a failed attempt at a Portability Directive in 2007, which has re-emerged some years later as a directive on the acquisition and preservation of pension rights) to the ‘indirect’ (the application of discrimination laws to pension schemes) and the ‘technical’ (Solvency II, IORPS).Several years ago the focus moved to personal pensions and the idea of a Europe-wide personal pension was proposed. This new consultation looks to take that concept further.The justification seems to be that EU-harmonised personal pensions would ensure a level playing field for all providers. It would also allow an approach that combined state, workplace and personal pensions (the so called three pillars of pension provision on which the EU focuses).Now there are 28 member states and probably a good variety of pension markets that are all very different – some are workplace, some are national, book reserve and personal pension based, some DB and some DC. {desktop}{/desktop}{mobile}{/mobile} I remember writing an article about this when such a product was first proposed, and flippantly commenting on how easy it would be to get through 28 legal and compliance regimes!The new paper gets around this by confirming that, rather than having to meet the requirements of each member state, it would focus on introducing a second, parallel personal pension system that meets certain minimum standards (the so-called 29th regime).So it will sit alongside the existing personal pension regime in the UK.It is suggested that the aim of such a product will be to achieve economies of scale for cross border providers. A Europe-wide personal pension regime would require default products to guarantee contributions or need to be based around a lifecycle fund, and it is some of these product design aspects that could be difficult.• EIOPA set out a number of high-level investment principles it feels should apply to all PEPPs, including a de-risking strategy – such as a lifecycle fund or alternatively a guarantee.• EIOPA suggested investment requirements are even more concerning, the suggestion being that assets should be selected with a view to the most efficient liquidity profile over the longer term and that in order to do this participation in longer-term investments such as infrastructure and other similarly illiquid investments could be beneficial.• EIOPA have also suggested that PEPPs should have a limited number of investment options where the provider has responsibility for reviewing holdings, and that a long-term investment horizon could be achieved by pooling all member assets into funds where smoothing of returns was applied.I get the feeling we are trying to link occupational pension principles to retail personal pensions.In essence my question is why? The UK has a well developed personal pension market and I am not sure I sense any demand for a new, less flexible one.The other showstopper for me is that the PEPP will have no decumulation regime, and that the rules for decumulation will be left to the individual member states. I am not totally sure what this means – a transfer to a new product perhaps? But for me decumulation will be key.The consultation suggests the establishment of a stand-alone authorisation regime for PEPP providers. This regime would ensure that those providers not already authorised and regulated under an existing EU directive would be covered, and that a PEPP product 'passport' showing that a product has been registered and approved in its home state could be used to remove any barriers to cross-border marketing of the product.In reality, am I, as a UK citizen, really going to be interested in a product from, say, Lithuanian Life? With UK personal pensions I can pretty much invest in any investment on offer from the safety of a UK wrapper and with probably relatively low charges.Would time, effort and money not be better spent in looking at some other aspect of retirement across Europe?

Mike Morrison: why would we want less flexible market?

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