With work still to be done on her report on the European Commission's proposal to create a controlled quality label for pan-European personal pension products (PEPP), Dutch MEP Sophie In't Veld (ALDE) published a working document on 8 February, in which she sets out her first areas for reflection work and takes stock of the main difficulties of this proposal.
Although the document notes broad support for the idea of a PEPP, she emphasises the complexity of its implementation and its particularly sensitive nature, particularly concerning its fiscal treatment.
The fiscal treatment dilemma
Readers may recall that the Commission's proposal, which was presented in June of last year (see EUROPE 11819), came with a recommendation for the member states to reserve for the new product the same fiscal treatment as similar national products already in existence.
The rapporteur considers that the need for harmonisation to make the PEPP an attractive product and the varied landscape of national tax incentive conditions are two diametrically opposed objectives.
“It is highly unlikely to achieve unanimity for any kind of tax harmonisation among the member states”, she observes, but does not rule out the possibility of alternative solutions. She considers, for instance, that a group of member states could agree to make progress on the basis of a voluntary, multilateral approach. Another way forward could be for the member states to agree on a 29th rule to allow for a specific fiscal treatment for the PEPP.
Implementation of portability in practice
On top of this question of a political nature come several more technical ones concerning matters such as portability. One of the ways in which the PEPP breaks new ground is the very fact that it can be transferred between member states with no requirement to change provider, by using 'national compartments'. In its proposal, the Commission set a deadline of three years for these compartments to be set in place after the regulation enters into force. The rapporteur feels that although such a deadline is desirable, it is almost certainly not doable and would constitute a major obstacle to small regional providers, which would be unable to bear the costs.
She feels that a more realistic solution would be to establish partnerships between providers in different member states. The number of compartments provided for in the contract would then be binding upon the providers, she proposes.
The default guarantee option
Another major problem identified by the rapporteur concerns the default guarantee option as proposed by the Commission. Under the original proposal, savers had the choice between five investment options, including a default investment option guaranteeing that they will get back at least the capital invested, thanks to risk attenuation techniques.
With several stakeholders (see EUROPE 11888 and EUROPE 11909) having already taken positions against this option, the rapporteur considers that a simple default option should be proposed, in the interests of consumers.
However, she also feels that the wording of the text is unclear as regards the requirement for a default option associated with a capital guarantee or using a so-called life-cycle investment strategy. While the capital guarantee is a source of security, it has the disadvantage of being expensive and may not be offered by all providers. A life-cycle investment strategy, on the other hand, does not offer a capital guarantee, but generally succeeds in achieving a better investment outcome, the rapporteur notes.
According to In't Veld a, possible compromise could be to have two default options: one providing a capital guarantee, the other a life-cycle investment strategy. Another answer could be to combine the two, she added.
Despite the difficulties that are emerging, the rapporteur remains determined. “The status quo is not an option”, she writes in the document, stressing that the concerns about insufficient adequacy of pension systems oblige Europe to develop such initiatives.
She will have the opportunity to present her initial working areas on Thursday during an exchange of views at the committee on economic and monetary affairs at the European Parliament. (Original version in French by Marion Fontana)