EC recommends auto-enrolment and dashboards
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The European Commission has adopted a package of measures about private pensions to improve pensions adequacy through auto-enrolment and dashboards, while kickstarting the sluggish economy by allowing schemes to invest more widely.
On Thursday, the EC said that “the aim of the proposed measures is to strengthen both the demand for and the supply of supplementary pensions”. The proposals come as just a fifth of working age Europeans have an occupational or personal pension, while the continent is facing a demographic time bomb whereby every third European will be over 65.
On Thursday, the EC said that “the aim of the proposed measures is to strengthen both the demand for and the supply of supplementary pensions”. The proposals come as just a fifth of working age Europeans have an occupational or personal pension, while the continent is facing a demographic time bomb whereby every third European will be over 65.
The measures form part of the EC’s Savings and Investments Union, which so far includes initiatives to improve financial literacy and recommendations on savings and investment accounts to increase returns on savings.
Stressing that the measures aim to complement rather than replace public pensions, the commissioner for financial services and the SIU, Maria Luís Albuquerque, said: “Our measures will give Europeans better tools to plan for old age with confidence, while also unlocking new sources of funding to boost the EU economy. I urge all stakeholders, including member states, to join our efforts, as effective implementation at national level will be critical to achieve those shared objectives.”
The non-binding recommendations for EU member states are:
- implement auto-enrolment with tax incentives and full opt-out, “in line with national circumstances and while fully respecting the role and autonomy of social partners and collective bargaining prerogatives”. This should be guided by existing good practices in the EU and elsewhere.
- develop “comprehensive” pension tracking systems that will provide people with “a clear overview of their pension rights and projected benefits across all pensions schemes”. Tracking systems should be compatible with the European Tracking Service; and
- develop national pension dashboards to give policymakers a better view of the coverage, sustainability and adequacy of their multi-pillar pension system; the dashboards would eventually feed into an EU-wide pension dashboard.
Somewhat confusingly, the EU’s ‘tracking system’ appears to be the equivalent of the UK’s ‘dashboard’ for savers, while the EC’s ‘dashboard’ is aimed at policymakers.
In addition, to allow pension funds to invest more widely, as well as making personal pensions simpler and more attractive for users and providers, the EC is proposing to amend the Directive on Institutions for Occupational Retirement Provision (IORP) II, as well as the Pan-European Personal Pension Product (PEPP) Regulation. This will need to be agreed by the European Parliament and the Council.
The EC said the changes clarify the prudent person principle, which governs how IORPs and PEPP providers invest. It hopes this will allow schemes to increase investment into equities – both private and listed – “to help citizens earn higher long-term returns on their savings and free up new sources of financing for the EU economy”.
The Commission plans to monitor the implementation of its recommendations at national level through the European Semester – the EU’s annual cycle for coordinating policies between member states – among others, saying it will promote the exchange of best practice.
The European Fund and Asset Management Association said it “strongly supports” the measures and hopes increasing pension assets across Europe will bolster capital markets and support economic growth.
Efama highlights tax incentives, arguing that they are “essential to encourage the uptake of supplementary pensions”.
However, it is against introducing value for money provisions in their current form for PEPPs, saying such assessments can quickly become complex and burdensome and that it is unclear how VfM could be assessed for such long-term products.
Director general Tanguy van de Werve said the EC initiative to address Europe’s widening pension gaps was much-needed.
“Their promotion of auto-enrolment, life-cycle investment strategies, and tax incentives can help savers build adequate pension income, while pension trackers increase transparency and awareness. We rely on Member States to implement these measures as a priority going forward. Done right, these measures will play a central role in securing sustainable retirement savings for all Europeans,” he said.
