EU Consultation for a Single Market for Personal Pensions

The European Commission mandated EIOPA to consider at least two approaches, either developing common rules to enable cross-border activity in the field of personal pension products (which is similar to the IORP Directive) or developing a 28th regime[1].

In the ‘European Commission White Paper on Adequate, Safe and Substantial Pensions’ issued in 2012, the single market was described as

a key instrument to support pension adequacy and fiscal sustainability. There is untapped potential to realise further efficiency gains through scale economies, risk diversification and innovation.”

Last February EIOPA set-up a Task Force on Personal Pensions which published a discussion paper requesting stakeholders’ feedback at the initial stages of consultation. Following the conclusion of the consultation, EIOPA will provide the European Commission with advice on the legislative changes required in the areas of prudential law and protection of personal pension plan holders.

The discussion paper focuses its analysis on the existing definitions of personal pension products and their main characteristics, as well as various ways for creating a single market for personal pension products. EIOPA mainly considered two approaches for the creation of a single market for personal pension products, these being passporting and the 28th regime.

According to the discussion paper, EIOPA understands that there should be no major prudential obstacles for pure defined contribution personal pension products. Difficulty will arise in the case of defined benefit products and defined contribution guarantees. The discussion paper also analyses obstacles that may arise in the area of taxation. EIOPA has expressed its concern in relation to taxation regimes since differences in tax regimes among the various Member States may lead to double taxation of retirement capital. Nevertheless, EIOPA deems that such obstacles have, in recent years, been diminished especially since Members States have changed their national tax legislation by extending domestic tax relief to foreign providers, as a result of the adoption of the Commission’s Pension Taxation Communication ‘The elimination of tax obstacles to the cross-border provision of occupational pensions’.

EIOPA considers the 28th regime as an alternative or parallel framework to passporting, facilitating further the development of a single market for personal pension products. In the discussion paper, EIOPA has recommended that this 28th regime should be designed in a way that accommodates tax and other possible differences among Member States. In EIOPA’s view the 28th regime could enable transferability of accumulated capital and highly standardised product rules ensuring a high level of protection for personal pension product holders.

The discussion paper also takes into consideration the protection of personal pension product holders with the proposal of a possible framework for the protection of personal pension product holders, such as transparency, distribution and selling practices, professional requirements and product regulation. The suggestions put forward by EIOPA are built, to a certain extent, on PRIPs and on the on-going work on the revision work on the revision of the IORP directive.

Interested parties are invited to participate in this discussion paper and contribute any insights and submit their comments by 16th August 2013.

The discussion paper can be accessed by clicking here.

[1] The 28th regime may be defined as rules which do not replace national rules but are an optional alternative to them. It is referred to as the 28th regime in order to signal that it exists in parallel to legal regimes in the 27 EU Member States.