The Pan-European Personal Pension Product: Challenges & Opportunities in Europe & Greece

Good morning ladies and gentlemen

Thank you for the kind invitation to join you at today's conference. It's a pleasure to open the day.

I must say when I think about the themes of the day - investor protection, sustainability and pensions reforms - I find them somewhat sobering.

But when we talk about pensions, the truth is always sobering.

Europe is an ageing continent - more than one-fifth of the population is aged 65 or older and that is a figure that will only grow.

And on top of this, one-fifth of people are also at risk of poverty in old age.

There is pressure on national pension systems. For occupational pension schemes, the move towards defined contribution schemes continues - transferring more risk to consumers, and for personal pensions, complex products make for difficult choices.

Looking at the picture across Europe, the pensions landscape across is very different from country to country.

In some countries for example a large part of the working population will have access to a workplace pension. In other countries, people will have a choice of personal pension products.

In Greece, voluntary occupational and personal pension plans play a very minor role in how people save for retirement. For example, membership in occupational pensions represent less than 1% of total employed.

So clearly today's themes are very relevant, not just for Greece but also for the whole of Europe.

But I am also conscious that we need to manage the conversation around pensions.

We need to encourage engagement and dispel some of the complexity.

And this is what I would like to touch upon in my remarks this morning: Why we need products like PEPP and the challenges and opportunities that are associated with PEPP, and what we need to do to close pension gaps.

PEPP: A simple product

Let me start then with why we need products like PEPP.

Put simply, we have a pension savings gap and we have to do everything we can to close that gap.

This means that we need state pensions that are robust and workplace pension that are well managed with good levels of participation. And on top of this, we need people to invest in personal pension products.

The European Union has some of the highest household savers in the world. The bulk of those savings are held in bank accounts. They could be working harder if invested into capital markets.

Products for retail investors - like unit-linked and hybrid products - are an important way for people to save for the long-term.

With these types of products, the return will depend on the asset allocation, and indeed some assets will provide protection against the inflation that we are experiencing now. This is a good thing.

However, since it is the policyholder that normally decides how their money is invested, they need a good level of financial literacy to navigate choices and understand the specificities of sometime too complex products.

Indeed, the complexity of these products can make it difficult for consumers to understand benefits, tariffs, costs and risks. Costs are not always clearly identified and cannot necessarily be linked to a specific component of the product, making it difficult to assess the relative value of each component.

This underlines the need for simpler products. And this is where PEPP comes in.

It is consumer-oriented product. One that is fully transparent when it comes to costs and fees and one that comes with clear information and advice - designed with the digital world in mind.

Opportunities

And here I am starting to move into the opportunities of the product.

PEPP was designed to be a portable and transparent product - a product that would stay with you throughout your working life. One that you could keep saving into even if you move jobs or countries.

PEPP has also been designed with an affordable default option - what's known as the 'Basic PEPP' - that comes with costs capped at 1% of the accumulated capital per annum.

And it is a flexible product - offering consumers the possibility to switch providers every five years with costs capped.

Providers must also give mandatory advice - including a suitability test for savers - before purchase along with mandatory personalised advice before retirement.

Now these are all positive aspects for consumers.

There are also opportunities for providers wishing to offer the product.

PEPPs can be offered by a wide range of providers that includes insurers, banks, occupational pension scheme providers, as well as other financial service providers and from our own research we know that most interest is coming from insurers and asset managers.

The single product registration will also allow for online sales and distribution in several Member States.

This means that PEPP has the potential to create more competition and broaden consumer choice in the marketplace which benefits both providers and consumers.

Challenges

There are challenges too.

As with any new product, it will take time to see growth. We have prepared the ground with the regulatory technical requirements and now we must give time for the product to take root.

We know that there are discussions going on at national level, between providers and supervisors, and this is a good development.

However, we also know that take up by industry is likely to be low.

We know that some potential providers might find the risk mitigation technique to outperform inflation with a probability of 80% over 40 years too restrictive.

We are also aware that the absence of tax incentives for PEPP and the lack of harmonised tax treatment in the EU appears to be one issue for industry.

And we know that, overall, take up is likely to be determined by the characteristics of national markets - so where the provision of personal pension products is particularly low.

And, so having said this, it's important that we keep in mind that while we have seen interest from providers, it will still take time for any products to enter the market gradually.

And as a supervisor, we will continue to be attentive to market developments and see how we can address challenges if needed.

Conclusion

Let me conclude.

Complexity and engagement are two of the most important challenges that we need to overcome if we are to close pension gaps.

There are opportunities for both.

Simple products - products like PEPP - are one solution. But so is access to clear advice and easy to understand information. Again PEPP delivers on this.

And simplification will help with engagement. Jargon, confusing language and seemingly difficult decisions about complicated products make saving for retirement a challenge that is very easy to ignore. Here again PEPP ticks the box.

I won't deny that there are challenges. And it is true that the impact of PEPP is likely to be different across Member States because of the diverse and fragmented landscape.

However, at the end of the day, we need to make it easier for savers to invest in products that will make a difference to them when they stop working. And I do believe that PEPP can play an important role here.

It's important to remember that products like PEPP are not designed to replace state pension schemes or workplace pension schemes. Instead they are designed to complement these schemes. And it is fair to assume that over time - as pressure increases on individual savers to prepare better for retirement, personal pension products will become more important.

And to provide a link to the next panel, I also believe that PEPP can play an important role linking long-term savers with long-term investment opportunities, realising the Capital Markets Union.

So, to sum up, PEPP comes with both opportunities and challenges, but should be considered as a viable option to help close savings gaps.

Ladies and gentlemen, thank you.

Public link

Please use the above public link if you want to share this noodl on another website.