Pan-European personal pensions could spark 'regulatory arbitrage'

The European proposal to launch a pan-European personal pension product could unintentionally leave some consumers with a lower level of protection because of the “regulatory arbitrage” behaviour it could prompt, PensionsEurope has warned.

The Brussels-based industry association was responding to the consultation on the plan by the European Insurance and Occupational Pensions Authority (EIOPA) to create a standardised personal pension product for use in all EU member states called the Pan-European Personal Pension (PEPP).

EIOPA set out its ideas on this in a paper in July.

PensionsEurope said in its response: “We question whether the PEPP could make a positive difference at EU level. 

“PensionsEurope supports it when people save more for their retirement, but we have not yet seen evidence of demand for the PEPP.

“It might highly depend on the national member state whether the PEPP will be an attractive product.”

The body stressed that, when developing the Pan-European internal market of personal pension products, it was important to respect existing national personal pension regimes and avoid disrupting systems that already worked well. 

“In the member states where the third pillar is already well regulated and developed, the introduction of a second regime could cause regulatory arbitrage, causing detriment for the existing PPPs (personal pension products),” PensionsEurope said.

The price of this type of market reaction would be paid by the consumers with a lower level of protection, it said. 

“The measures envisaged by EIOPA to deal with these concerns still do not seem to be adequate,” it said.

From a practical point of view, PensionsEurope said it was unsure how this second regime would tie in with national regimes. 

“Many practicalities in this regard are not sufficiently covered in the consultation paper in our view,” it said.

It also argued there should be more development of workplace occupational pensions in the EU to realise adequate and sustainable pensions.

The group went on to say that, if the idea of PEPPs were to go ahead, it was import to test the demand and go into more detail on reasons why such a system was needed on top of the many personal saving products that already exist.