Briefing Document: Insurance Europe's Position on Supplementary Pensions

Executive Summary

This document synthesizes the key positions of Insurance Europe regarding the European Commission's consultation on supplementary pensions. The federation's central argument is a strong call for subsidiarity and the preservation of national diversity in pension systems. While supporting the EU's goal of strengthening retirement income, Insurance Europe consistently cautions against prescriptive, one‑size‑fits‑all EU‑level mandates that could disrupt well‑functioning national frameworks.

Key Takeaways:

• Pension Tracking Systems (PTS): PTS are valuable tools for transparency and saver empowerment. However, their development and improvement should remain a Member State competency. The EU's role should be limited to supportive recommendations for countries with nascent systems, not binding legislation.
• Auto‑Enrolment: Automatic enrolment schemes can be effective but should be implemented on a voluntary basis by Member States and must be meticulously tailored to national labor markets, social partner involvement, and existing pension structures.
• Pan‑European Personal Pension Product (PEPP): The current PEPP framework is considered a market failure, hamstrung by excessive complexity, unworkable risk‑mitigation rules, a restrictive 1% cost cap, and burdensome sub‑account requirements. A fundamental review is necessary, with a potential reframing of the PEPP as a voluntary EU‑wide "label" for nationally regulated products.
• IORP II Directive: The existing IORP II framework is deemed largely fit‑for‑purpose. Its principles of minimum harmonisation and the Prudent Person Principle provide a robust and flexible foundation. Insurance Europe opposes major revisions, particularly the introduction of new quantitative investment rules, an explicit EU‑level "duty of care," or expanded supervisory powers to intervene in investment returns. A few targeted technical adjustments are suggested to clarify rules on borrowing and guarantees.

1. Core Principles and Overarching Position

Insurance Europe welcomes the European Commission's initiative to enhance supplementary pensions as part of the Savings and Investments Union. However, it underscores that the European pension landscape is highly diverse, shaped by distinct national contexts, regulations, and market structures. Consequently, any EU‑level measures must respect this diversity and avoid prescriptive approaches that risk disrupting effective national systems or adding unnecessary complexity. The principle of subsidiarity is the foundational theme of the response, advocating for tailored, country‑specific solutions over uniform EU mandates.

2. Pension Tracking Systems (PTS)

Insurance Europe views Pension Tracking Systems as valuable tools for enhancing transparency, increasing awareness, and empowering individuals in their retirement planning.

EU Role and Recommendations

• Avoid One‑Size‑Fits‑All Legislation: EU‑level legislative action is strongly discouraged, as it could disrupt or complicate the diverse and often well‑functioning systems already in place across Member States.
• Supportive Role: An EU Commission recommendation could be beneficial for countries where tracking systems are not yet in place or are in early development.
• National Competency: For countries with mature systems, improvements are best left to Member States, who are best positioned to adapt them to local user expectations, regulatory structures, and policy priorities.

Key Features and Implementation Challenges

Insurance Europe identifies several elements as crucial for a successful PTS but refrains from ranking them to emphasize the need for national flexibility.

• Fundamental Preconditions:
  • Simple and Secure Access: High usability and low access barriers are critical for broad uptake. This may involve both digital and paper‑based options.
  • Objective and Unbiased Information: Users must have confidence that the estimates provided are reliable and free from commercial influence.
• Important Considerations:
  • Coverage of all three pension pillars.
  • Cost‑effectiveness, which should be evaluated only after core usability and objectivity principles are met.
• Primary Challenges: The significance of challenges like data protection (GDPR compliance is a top priority), data accuracy, platform access, and governance varies significantly by national context and the system's maturity.
• Interoperability: While potentially valuable in the future, interoperability between national systems is not considered a priority at this stage due to its high complexity.

Examples of National Pension Tracking Systems

3. Auto‑Enrolment Schemes

Insurance Europe supports the consideration of auto‑enrolment schemes where appropriate, but strictly on a voluntary basis for Member States and designed in line with national circumstances. There is no one‑size‑fits‑all solution.

Design Principles

• National Flexibility: The effectiveness of features depends heavily on national pension systems, labor markets, and institutional settings.
• Role of Social Partners: In countries like Denmark and Sweden, social partner involvement is essential and ensures high coverage. In other contexts, employers should have the flexibility to introduce schemes without collective agreements.
• Incentives: State incentives (tax or subsidies), particularly when calibrated by income, are crucial for encouraging participation. Incentives for employers can reduce their administrative and financial burden.
• Default Options: Default plans are essential for those with limited pension knowledge. However, a single, mandatory default option should be avoided, as it could distort markets. The design (e.g., life‑cycle strategy vs. capital guarantees) should align with the national context. Competition between multiple providers is critical.
• Inclusivity for Self‑Employed: To ensure equal opportunities, self‑employed individuals should have access to equivalent tax incentives and flexible contribution rules to accommodate irregular income.

4. Pan‑European Personal Pension Product (PEPP) Regulation Review

The assessment of the current PEPP framework is overwhelmingly negative. It is described as a market failure due to a regulatory design that is overly complex, prescriptive, and misaligned with market realities.

Fundamental Flaws of the Current PEPP

• Overly Restrictive 1% Cost Cap: This makes a sustainable business model unfeasible, disincentivizes market entry, and discourages investment in higher‑cost but essential long‑term assets like infrastructure, undermining the Savings and Investments Union's goals.
• Mandatory Sub‑accounts: The requirement to offer sub‑accounts for at least two Member States creates significant operational complexity and cost, which is disproportionate to the minimal cross‑border demand.
• Rigid Risk‑Mitigation Techniques (RMTs): The rules impose conflicting design demands (requiring products to be simultaneously very safe and high‑yielding) that are difficult to meet and can stifle product innovation.
• Regulatory Duplication: The obligation to produce PEPP‑specific disclosure documents adds cost and complexity without clear benefit over existing frameworks like PRIIPs or IDD.
• Short‑Term Focus: The low‑cost switching service incentivizes liquid investments over the long‑term, illiquid assets crucial for the European economy.

Proposed Path Forward for PEPP

• Fundamental Rethink: A comprehensive review is needed to address the structural barriers.
• PEPP as a Voluntary Label: One potential solution is to reframe the PEPP as a voluntary EU‑wide label that could be applied to nationally regulated personal pension products. This would leverage existing frameworks, enhance comparability, and avoid regulatory duplication.
• Specific Rule Changes:
  • Cost Cap: The 1% cap should be removed or made more flexible, for instance by shifting to a "Reduction in Yield" metric averaged over the accumulation phase.
  • Sub‑accounts: The minimum number of sub‑accounts should be removed. Providers can offer them where there is demand, but it should not be a default requirement.
  • Risk Mitigation: Requirements should be more principle‑based and less prescriptive, recognizing guarantees as a valid RMT.
  • Distribution: Rules on distribution (e.g., execution‑only) should be determined at the Member State level to ensure a level playing field with comparable national products.
  • Investment Rules: There should be no PEPP‑specific investment rules; PEPPs should be subject to the same sectoral rules as comparable national products.

5. Institutions for Occupational Retirement Provision (IORP II) Directive Review

The IORP II Directive is largely viewed as a successful framework built on the appropriate principles of minimum harmonisation and proportionality. No fundamental revisions are deemed necessary.

Key Positions

• Prudent Person Principle (PPP): The PPP is a robust and effective framework for guiding investment decisions, including in alternative assets. It provides sufficient guidance, and no new quantitative investment rules or restrictions are needed at the EU level. Any changes should maintain alignment with the PPP under Solvency II.
• Risk Management and Supervision: The current provisions, including the Own Risk Assessment (ORA), are adequate. National Competent Authorities (NCAs) are already equipped with the necessary powers. Extending these powers to allow intervention in securing "adequate investment returns" is strongly opposed, as it would undermine the responsibility of asset managers and create governance risks.
• Duty of Care: The introduction of an explicit, EU‑level "duty of care" provision is strongly opposed. It is considered redundant, as the obligation to act in the best long‑term interests of members is already covered by the PPP and national laws. Such a provision would likely lead to increased administrative burden without clear added value.
• Cross‑Border Activity: The limited extent of cross‑border IORP activity is not due to flaws in the IORP II Directive but stems from persistent divergences in national tax, social, and labor laws, which the Directive cannot resolve.
• Transparency: The current principle‑based rules are sufficient. The relevance of specific information (e.g., on costs) varies significantly between defined benefit and defined contribution schemes, necessitating a flexible approach.

Proposed Technical Adjustments

• Borrowing Rules: Article 19(3) should be clarified to create an explicit exception for subordinated loans, which can be used to strengthen an IORP's solvency margin.
• Guarantees: IORPs should be explicitly permitted to act as guarantors on behalf of their subsidiaries, a common requirement in real estate or infrastructure joint ventures.
• Contribution Limits: Member States should be discouraged from imposing additional legal caps on pension contributions beyond existing tax‑deductible limits, as this undermines the goal of promoting adequate retirement savings.