The European Union needs a common pension product because existing long-term savings offerings are too complex and costly, the region’s industry regulator said.
“There are too many products and people don’t really understand them,” Gabriel Bernardino, chairman of EIOPA, the top European insurance and pension regulator, said in a speech in Frankfurt on Tuesday. “This is not what a long-term savings product should be. Less costs and better returns will build a better pension.”
EIOPA submitted a proposal to the European Commission for a so-called Pan-European Personal Pension Product and is now “ready to design product pilots,” Bernardino said. The pensions should be invested in assets including equities, property, infrastructure and renewable energy while steering clear of short-term market volatility, he said.
By doing so, “the regulatory treatment could be aligned to the risks effectively incurred, resulting possibly in lower capital requirements,” Bernardino said. “The PEPP product pilots need to be designed in a way to ensure the highest standards in transparency, fairness, governance and risk management.”
With ultra-low interest rates and increasing life expectancy, pension funds and life insurers that supply retirement income to millions of European workers face a growing gap between the money they have and what they must pay out.
“There is a huge fragmentation of products available to consumers, from low-performing deposits to very often too complex and costly life insurance and mutual funds,” Bernardino said.
Insurers in Europe, which manage 9.8 trillion euros ($10.8 trillion) of client money, have to comply with new risk-based regulation dubbed Solvency II, introduced at the beginning of the year by the EU and EIOPA. Low interest rates are especially a challenge for life insurers in countries such as Germany and the Netherlands, where many products sold in the past have fixed-return guarantees.
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