Resolutions on Comments on EIOPA-CP-11/XX (Title of CP) 1/53 EIOPA 2015

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1 Question No. Name Comment 1. Market attractiveness: what elements are considered decisive that will make it attractive for providers to offer PEPP and how much are providers prepared to invest if doing so (e.g. investment in distribution channels, internal resources, product innovation, research in market demands or the specific markets where the product could be sold) 1 Allianz SE Principally the product has to be attractive for customers. This means the products has to fit customer demands and needs. Especially the following points are necessary to make pension products attractive: a) A clear and simple tax incentive; b) Employment and social laws supporting PEPPs; c) A second legal regime not to interfere with diverging and contradicting national rules; Furthermore feasibility for providers has to be taken into account. The requirements for product design should be such that costs do not become prohibitive and products can be offered at attractive prices to customers while allowing a reasonable margin for product providers. 1 Insurance Europe Insurance Europe believes that, to appropriately answer this question, further information would be needed on PEPP s final design and applicable regulatory framework. Insurance Europe maintains that the PEPP should be a high-quality product, providing for an appropriate level of customer protection and suggests that some insurance features (eg biometric risk coverage) should be included in PEPPs final design. European insurers strongly believe that: In the spirit of creating a Capital Markets Union, and so to generate funding for long-term investments, the PEPP would need to allow providers to generate long-term liabilities. This means that consumers should be incentivised to keep saving for a long period, ideally until retirement. Insurance Europe asserts that minimum investment periods should be included in the PEPP framework. 1/53

2 PEPP providers should be subject to an appropriate prudential treatment taking into account PEPP s long-term horizon and specific features. Insurance Europe maintains that the same risks, same rules principle should apply to ensure a level-playing field between all providers. For PEPPs with minimum return guarantees and/or biometric risk coverage, the applicable framework should be Solvency II. However it should be ensured that insurers ability to manage market volatility in the long-term is duly taken account of. The PEPP would need to come with the option for the consumer to ask for additional biometric risk coverage either during the accumulation phase or decumulation phase (taking into account national practices). Since pension products are generally defined by their objective to provide an income in retirement, the protection of longevity risk should be considered among the options offered to consumers, in line with national rules. From a consumer protection perspective, the PEPP should entail an appropriate level of security for policyholders. As stated in its response to EIOPA s public consultation on PEPP, and with reference to the questions 3.b and 3.c of this survey, Insurance Europe maintains that PEPP providers should be allowed to offer PEPPs with a default investment option based on either: Guarantees Long-term collective investment where premiums are paid into a life fund and where the concept of smoothing is applied Life-cycling with derisking The decision about permitted default options should take into account that products with guarantees offer a higher level of protection than life-cycling strategies or balanced funds. In the latter, consumers are exposed to the risk of losing their capital and therefore having a lower retirement income than expected. Further analysis and back-testing should be carried out by EIOPA to assess lifecycling strategies, especially during the last financial crisis. Investment options based on life-cycling can in principle offer some benefits in terms of returns. However, it should be recognised that in this case, the PEPP would be a pure individual Defined 2/53

3 Contribution (DC) product that does not provide any real guarantee or minimum return1. In fact, in the absence of a guarantee, consumers might even incur losses and receive less than the paid-in capital. This risk should be made clear in the PEPP pre-contractual information. With investment options based on long-term collective investments where premiums are paid into a life fund and where the concept of smoothing of returns is applied, the risk exposure for customers is lower than with individual life-cycling products thanks to risk pooling and the smoothing of returns and losses. Furthermore, this option could involve lower transaction costs than in a life-cycling strategy, as there is less need to rebalance individual portfolios. In some markets, personal pension products can take the form of minimum guaranteed annuities. Insurance Europe suggests that providers should be allowed to offer PEPPs with guaranteed minimum annuities as investment option. This option should be considered equal to investment options containing a guarantee. 1 APK There is no need for the so called PEPPs nor it will offer additiional value 1 APFIPP - Portuguese Association of Investment Funds, Pension Funds and Discritionary Asset Managers The attractiveness of PEPP will depend greatly of the product design and characteristics. APFIPP believes that PEPP should be a truly Pan-European Personal Pension Product that can be used by all European citizens. The product should be simple, easy to understand and to use, which means that it should be highly standardized. In fact, although the consultation paper released by EIOPA foresees that some features may remain country specific, APFIPP believes that the success of PEPP in becoming a true Pan-European vehicle for personal retirement savings depends on achieving the fullest harmonization possible, including taxation. This means that the same rules will apply to all European citizens, regardless of their country of origin or of the country where the PEPP is domiciled. This would prevent any kind of regulatory of fiscal arbitrage between PEPPs domiciled in different jurisdictions. If specific country singularities are maintained, PEPP providers will have to know the singularities of every country in which they have clients and to act in accordance with them. This will mean multiple 3/53

4 different procedures, which will result in greater costs for the PEPP and/or for the PEPP provider, which will limit the attractiveness of PEPP. Alternatively, PEPP providers may decide to sell their PEPP in only one or in a limited number of EU jurisdictions, but then it wouldn t be the Pan-European Product envisaged. The product should be built on existing EU financial products frameworks (such as UCITS) to minimize the impact for PEPP providers to comply with new requirements. It s essential that PEPP is a simple product, easy to understand and to use, in such way that it is considered as a non-complex financial instrument under MiFID II and, therefore, it can be sold on an execution-only basis. It s also important to note that in countries, such as Portugal, that already have local PPPs with a great level of acceptance by the general population, potential PEPP providers may not be interested in providing PEPP if it does not have the above mentioned characteristics, such as full harmonization, both in terms of the product regime and the tax regime, that allows for an effective cross-border activity. In case PEPP maintains countries singularities and different taxation regimes, the cost to operate such a product on a cross-border basis will probably be too high. If this is the case, where offering PEPP on a cross-border basis is so high that it is preferable to maintain the client base purely or mainly local, we guess that there will not be much interest in a new product such as PEPP because we already have a local PPP that is well recognized by both clients and providers. We also expect that the demand for PEPP will be affected, especially at the beginning, in countries that already have a local PPP with great implantation. For the attractiveness of PEPP, it is also important that no additional requirements are demanded to providers already authorised under EU legislation, except eventually in terms of solvency requirements for PEPP providers that offer a guarantee or biometric risk coverage. Nevertheless, we consider PEPP very important, firstly to create a greater consciousness and awareness, especially among the Europeans that are entering the labour market, about the need to save for their retirement, secondly to have a savings instrument that moving workers can use to save for their retirement, and thirdly because if PEPP can truly operate on a cross-border basis, economies of scale will mean less costs, which means higher returns for the investors. To conclude, we think that PEPP could either be a great success or otherwise be a product of small significance, depending on its design and characteristics. EIOPA and the Commission should have the ambition to design PEPP in such a way that it will became the main product that European citizens use for Personal Pension savings. 4/53

5 Regarding Question 3a, we believe that free switching of the investment is Very Important. Investors must be able to switch PEPP within the same provider or between different providers if they are not satisfied with the performance of their current PEPP or if they consider that another PEPP will perform better in the future or is more adequate to their personal characteristics. It is our understanding that PEPP s investment policy should be similar to the investment policy of UCITS with the exception that PEPP s should be able to invest in long term illiquid assets, such as SMEs and infrastructures, up to a maximum of 30%, the remainder being invested in UCITS eligible assets. For that reason, we do not consider important to allow free switching only at defined intervals. If PEPPs are designed in the way referred (UCITS-like, with the possibility to invest up to 30% in illiquid assets), we see no reason to impose any limitation to switching between PEPPs, which means that the frequency could be daily. In Portugal, local PPP, called PPR Plano de Poupança Reforma, may invest in illiquid assets such as real estate and AIFs (up to a limited percentage) and there is no limitation regarding the frequency of switches. This being said, what we observe, in practice, is that despite the non existence of any limitation to the number and frequency of switches, the large majority of investors do not switch their product or switch it only a limited number of times before they retire. Notwithstanding what has been referred, if PEPPs were required to invest a greater part of their portfolio in illiquid / long-term assets (which in any case we would not agree with), then it could be advisable to impose switching gates, with adequate pre-notice, to allow PEPP providers to meet the switching demands without prejudicing the other investors. In this case, we consider that there should be at least two switching gates every year. Regarding Question 3b, APFIPP understands the reasons behind a default option but we believe that PEPP providers should have enough freedom to decide the investment options they intend to offer their current and potential clients. This includes not being forced to offer a default option, if the PEPP provider so chooses, even in the case it offers more than one investment option. It should be noticed that a default option is only workable if the PEPP provider is also the distributor or if the distributor only sells PEPPs from a unique provider. Otherwise, the distributor will be offering as many default options as the number of providers of the PEPPs that it distributes, which poses the question of which default option should be offered to the client. Additionally, we find it hard to have a single default option that suits every client, because they have 5/53

6 different personal characteristics, such as age, attitude towards risk, level of income / wealth, etc.. In the case of PEPP being a vehicle with strict investment rules just like we have with UCITS this will be a sufficient standard and therefore a default option will not be necessary. This being said, if the PEPP provider wishes to offer a default option, we also consider that the default option does not need to be life-styled. The PEPP provider should determine, based on its skills and competences and also on the characteristics of its current and potential clients, what the default option should be. This does not mean that we oppose that the investment option is life-styled, we just consider that this option should not be mandatory. The same applies in relation to Question 3c. APFIPP believes that PEPP providers should have enough freedom to decide the investment options they intend to offer their current and potential clients. Therefore, just as we mention in relation to the life-styled investment options, we are not against the default investment option offering a guarantee, we just consider that this option should not be mandatory. In relation to Question 3d, we need to take into account the type of costs we are referring to. In the case of management fees, for example, we do not consider important to impose a cap because the level of the management fee should reflect the more or less complexity of the investment policy and the type of assets the PEPP may hold. Imposing a cap on the management fee may limit the ability of PEPP providers to implement innovative investment strategies and, therefore, such cap may ultimately be detrimental to investors because they won t be able to access those innovative strategies that could bring them more return and / or less risk. What is important is that the costs of the PEPP are transparent to the investors, enabling them to take those costs and charges in consideration when deciding which PEPP to invest in. Regarding entrance, switching and exiting fees we think it is important to impose a cap and that the fee reflects just the administrative costs for PEPP providers/distributors. In most situations we could even support that no fee could be charged on these cases. There are however cases where the investment policy is designed assuming that the client will stay for a pre-defined amount of time (such as PEPPs with a guarantee or life-cycle investment policy), and early withdrawals (such as switches) may hamper the success of the investment policy. In this case a fee may be charge but there should be a cap that should be sufficiently low to not prevent the PEPP holder from switching. 6/53

7 1 Fidelity International Key issues will be to ensure the PEPP is based on known products such as UCITS so that the investment required in eg accounting, risk management,compliance etc is minimised. It will also be helpful to have distribution covered by an EU regulation which should itself be modelled on, and following as closely as possible the IDD. It is also important that the regime for PEPPS is designed from the beginning to be accessible on line, this could significantly lower distribution costs. Given a template like that FIL would be likely to conduct research into demand and distribution channels. We believe that, like UCITS, this would be a slow burn product which would gradually become know and accepted, but we do believe that demand will grow as people come to understand that the State can no longer provide an acceptable retirement income 1 ICI Global ICI Global is pleased to respond to the EIOPA PEPP survey. For our detailed position explaining our survey responses (especially for question 3), please see ICI Global submission for the EIOPA PEPP Consultation, submitted on 5 October 2015, available at ( ICI Global PEPP Submission dated 5 October ). We strongly support EIOPA s efforts to move forward the PEPP initiative, and we agree with the EIOPA Chairman Bernardino s statement in a recent speech that both occupational and personal pensions can play an important role in diversifying the sources of retirement income. In this sense, more should be done to create the appropriate incentives for the establishment of occupational and personal pensions, both at national and EU levels. See Chairman of EIOPA Gabriel Bernardino s speech, EIOPA and Supervisory Convergence The Beginning of a New Journey, EIOPA 5th Annual Conference (18 November 2015), available at 18%20EIOPA%20Annual%20Conference.pdf. We also are pleased that EIOPA is mindful that its regulations must create a favourable business environment for the providers so that they would consider investing into creating a new product. While there are some stakeholders who question whether providers will offer PEPPs and some that question whether consumers would purchase PEPPs, we encourage EIOPA to take a long- 7/53

8 term view of the PEPP regulation. By definition, saving for retirement is a long term endeavor, and the regulation aiming to accommodate this endeavor should be forward-thinking, allowing for flexibility and innovation to adjust to new demands, including changes in economic and demographic conditions. To attract providers to the PEPP market, the regulation will need to provide some flexibility so that providers can design a product that appeals to diverse consumer needs from different Member States with different personal circumstances. It is too early to tell if this product may have a customer appeal across the board or if a particular PEPP may appeal to a particular generation (e.g., millennials) in particular Member States. We agree that some standardisation may be helpful, such as standardising a default fund. In this regard, we reiterate our view that a lifecycle strategy is an appropriate and well-recognized default investment option for retirement savings (including by the Organisation for Economic Cooperation and Development). We disagree that the default fund must offer a guarantee option. As we discuss in detail in our submission (citing to the work by the OECD), guarantees are expensive and may, in fact, be detrimental to retirement savers. This is because even the low-cost guarantee would result in a reduction in retirement income for the average investor. See ICI Global PEPP Submission dated 5 October. However, if a PEPP is allowed to have more than one investment option, a provider could experiment with several different option designs to see which options are in demand. We continue to believe that fee caps are not advisable. Fee caps, in the same way as other kinds of price restrictions will distort the market, limiting the supply of investments from which investors may choose and, consequently, potentially driving product fees up rather than down. By contrast, competition (assisted by transparent disclosure) is likely to drive down the fees. For more detail, see ICI Global PEPP Submission dated 5 October. To prompt providers into a PEPP development, providers must have certainty about the product s regulatory future. While EIOPA may want to have assurances that providers will create PEPPs, these assurances may not be possible until providers have a firmer outline of features that will be allowed. In this classic chicken and egg dilemma, EIOPA and the Commission should take the first 8/53

9 step in creating an environment where the private industry is incentivised to offer pension solutions, especially for future generations that may not experience the generosity of the public pensions and benefit payments from defined benefit plans that current retirees receive. Lastly, providers follow different business models. Some may choose to be first in the field, following the concept if we build it, they will come, while others may follow the wait and see approach. Importantly, while the survey does not focus on the tax question, we reiterate our position that the Commission and EIOPA should find a tax approach that would allow PEPPs to be competitive across the European Union and facilitate the free movement of capital. While we appreciate the competencies of Member States with regard to taxation, we believe the Commission and EIOPA have an important role in working with Member States to develop and promote a tax approach that will allow PEPPs to be competitive across the EU. For example, we encourage EIOPA to explore whether a TEE (taxable-exempt-exempt) regime on a pan-european scale may serve as a workable tax approach for PEPPs. (Generally, TEE describes a regime where savers contribute to a retirement product on an after-tax basis; but the investment growth and the distributions from the TEE retirement account are tax-free.) Technical comment on the survey questions: We note that the phrasing of certain questions is confusing. This is particularly so with respect to the multiple choice scenarios of question 3. This is because the umbrella question in Question 3 asks to rate the presence or absence of certain factors on the importance scale. The question s inclusion of both words in the question the presence or absence - may lead to inconsistent understanding of the sub-questions and, thus, to inconsistent answers. One respondent may be ranking the presence of a certain factor, such as requiring a default fund to offer a guarantee, as very important to have such a requirement, while the other respondent may answer the same question as very important but with respect to the absence of that factor. In that case, it is unclear what the two very important responses together mean with respect to the requirement of a guarantee. 1 Mefop S.p.A. Mefop (which is not a provider of PEPP) is of the opinion that at this stage it is difficult to answer this question. However, Mefop believes that it might highly depend on the national Member State whether the PEPP will be an attractive product. The PEPP may improve supplementary retirement savings in the 3rd pillar, especially in Member States where there is no or not a well-developed personal pension system 9/53

10 or there is limited workplace pension coverage. It can also prove to be useful when there is poor security for existing personal pension products or when existing products are not attractive enough. Moreover, the success of the PEPP will highly depend on its tax treatment. The introduction of a PEPP should not provoke the risk of a downward harmonization of rules in Member States which have a well-developed pension system (risk of regulatory arbitrage). 1 VOEIG - pan european Marketing of PEPP. - pan euopean political support when Marketing the PEPP. - tax exemption in the accumulation and decumulation phase. - individual advice of the clients according to their individual risk/return profiles (including possible life cycle concept). - legal concept of the PEPP product supports long term aspect of the Investment (including risk/return estimate). 1 Assogestioni Product innovation and research in market demands or the specific markets where the product could be sold are crucial for the success of the PEPPs. Nonetheless we note that some existing Italian products already respect the main features and characteristics of the PEPPs: these products would only need minor adjustments and, consequently, low investments to be sold as PEPPs. 1 Zurich Much of the answers to these questions are dependent on the final design and framework of the rules. There needs to be the simplicity or support to enable cross border business and to ensure it is attractive to the target market. The level of investment that we would make will depend on our assessment of the final shape of the product, the likely market success and the final positioning compared to competing opportunities in the pension space. We would note that PEPP is just one solution in a complex environment of opportunities for individuals to save for their retirement. 1 GDV PEPP would be highly beneficial for consumers and society if the following quality criteria were met: 1. The product facilitates long-term savings until near-retirement age. 2. The default option of a PEPP should include a life-long annuity. 3. Pensions should provide high levels of safety and predictability: The default investment option of a product should include protection against high market volatility by means of a guaranteed minimum 10/53

11 annuity or guarantees on accumulated capital at maturity. High prudential standards and insolvency protection of PEPP providers are very important. 4. Consumers can choose coverage against biometric risks. Each market entry of providers takes efforts and the market for personal pension products is especially complex. The regulatory framework for such products is contingent on interrelated national developments in social security systems, corresponding tax law and consumer preferences. Therefore, at the moment providers of pension products need thorough knowledge of the regulatory, tax and social law environment and potential administrative procedures. A 2nd regime for PEPP could reduce some of those complexities. German insurers welcome that the so far suggested PEPP features try to find a balance between standardisation, flexible elements and national product requirements which are necessary to adapt to consumers needs and expectations. However, some improvements are necessary to meet the quality criteria mentioned above: 1. German insurers regard the protection of longevity risks as an essential quality feature of personal pension products. Therefore, PEPP as a default option should provide a regular retirement income throughout the life span. 2. High flexibility for consumers through periodic switching decreases the ability of providers to invest in the long term. Long-term investments play a key role for providing sustainable, adequate and safe pensions. Therefore, we do not agree that periodic switching free of charge is a suitable mandatory feature for PEPPs. 3. The default option of a product should always include protection against high market volatility. Guarantees provide the highest level of predictability of outcomes for retirement savers. PEPP requirements should respect that there exists a variety of guarantees in the market, for instance guarantees on accumulated capital at maturity and guaranteed minimum annuities. The exact nature and level of guarantees should be left to the PEPP providers. 4. Long-term financial stability and soundness of providers as well as consumers protection against insolvency of the provider are indispensable. However, where complementary private pensions already exist, the PEPP would be an additional offer to national products. We also point to the fact that the demand for PEPP as a voluntary retirement savings product depends on the individuals awareness of savings needs and capabilities as well as on 11/53

12 1 European Federation of Insurance Intermediaries (BIPAR) many other factors. Without sufficient information about the interactions of PEPP with national regulatory environments and market conditions it seems difficult to conduct a realistic assessment of the opportunities of a PEPP and thus the willingness of providers to invest in the development of such products. In addition, regarding the PEPP framework itself there is a range of open questions that seems to be cost-sensitive: The interaction of the PEPP with national contract laws needs to be clarified with respect to all stages of the contract (pre-contractual information, conclusion, termination). Furthermore, the authorisation regime, passporting procedure, information requirements or POG processes might involve implementation costs. The design of flexible options for consumers may also effect providers product calculation. PEPPs will be in competition with PPPs. We believe that product providers may have the best chances to sell PEPP if they have a maximum flexibility to adapt the product to the needs of the market. Furthermore, the return must be good, the quality of the product must be good (e.g. whether it offers flexibility, supplementary coverage, ). There must be a balance on aspects such as guarantees, costs, etc. If there is administrative burden, there will be little interest in offering these products. 1 Standard Life For Standard Life to enter this market we would need to see a compelling business case which could depend on a range of determinant factors, the key ones being: 1) Commercial viability - we would need to be able to see a return on capital investment within a definable timeframe; and 2) Customer demand - there would need to be a clear demand from consumers who are not already adequately served by existing provision within their Member States. As stated in our previous submission, a standardised pension could not exist within the EU without the harmonisation of taxation regimes. Pensions are currently taxed on different bases, either at entry, during the product life and/or at exit. We therefore envisage that any pan-european product is more likely to take the form of a Pan- European Long-term Savings product (PELS). The PELS would be structured as an own life insurance contract with a small amount of death benefit and linked to pooled investment funds. 12/53

13 The following would be necessary features: An effective insurance guarantee scheme and redress system in order to protect customer interests and market confidence. The pension saver must take the investment risk. Any default fund should not be considered as an advised investment. No requirement for guarantees. Flexibility - we do not believe that a highly prescriptive regime would be beneficial because customer behaviour can vary between Member States. Standardised pre-contractual requirements - in particular to ensure the commencement of the cooling off period has the same treatment in each member state. Should guarantees be a required feature, this is likely to raise costs for providers which would invariably have an impact on charges. This could affect the commercial viability of the product from a provider perspective, but also make it less attractive for consumers. 1 FFSA FFSA believes that, to appropriately answer this question, further information would be needed on PEPP s final design and applicable regulatory framework. FFSA maintains that the PEPP should be a high-quality product, providing an appropriate level of customer protection and suggests that some insurance features (eg biometric risk coverage) should be included in PEPPs final design. FFSA strongly believe that: - In the spirit of creating a Capital Markets Union, and so to generate funding for long-term investments, the PEPP should be a retirement product, aiming to deliver a retirement income over the lifespan. - The same prudential standards should apply to all providers in order to guarantee a level playing field and to provide adequate income annuities to the retirees. FFSA maintains that the same risks, same rules principle should apply to ensure a level-playing field between all providers. - The PEPP would need to come with the protection of longevity risk and PEPP s design should include decumulation phase and insurance features. - From a consumer protection perspective, the PEPP should entail an appropriate level of security for policyholders. 1 ABA The market attractiveness will depend on the relative attractiveness of PEPP compared with existing 13/53

14 pension schemes and pension products. The relative attractiveness will depend on the prudential regulation and on the tax and social security rules. There are Member States like Germany with well-developed second and third pillar pensions. Existing systems, in particular occupational pensions, should be further developed and enhanced to reach their potential before additional systems are established and supported. 1 ABI The Association of British Insurers (ABI) recognises the rationale behind the PEPP is to have a crossborder retirement income product, PEPPs have the potential to introduce scalability in retirement income products. However, the establishment, and ultimately the market attractiveness of the PEPP, would be dependent on the willingness of national systems to accommodate such a product and adequate consumer demand. The UK market, for example, is very mature and developed market, and as such caters to UK consumers specific needs, demands and expectations, which in turn is shaped by the national system. Further, if the product can demonstrate it can meet the long-term retirement income needs of mobile EU citizens, then this would make it more attractive from a business point of view. 1. Taxation challenges It also important to highlight that a major challenge to the attractiveness of the PEPP from a consumer perspective is tax relief and tax incentives. For a standardised pension product to be genuinely operational across borders, the following conditions need to be met: harmonisation of pension relief practices and pension taxation incentives. The point at which tax relief is received is a significant barrier to a standardised PEPP. For example, if tax relief is to be applied at entry to a pension (i.e. taxation is deferred since it encourages citizens to save for their old age) in one member state but in others it is applied on exit significant inequalities could emerge at the decumulation stage and the effects of the PEPP would not be comparable across member states. It should also be noted that the UK Government is currently considering changing how pension should be taxed, which could create arbitrage and make the PEPP less of an attractive product from a provider perspective. Further, tax incentives offered in each member state plays a role in generating consumer demand (and thus provider willingness to invest in certain products due to the commercial viability), without which individuals would save for retirement through other vehicles. Pensions would not exist without the tax benefits offered in each member state, where the legal structure in each pension system 14/53

15 reflects the tax and finance laws which created those benefits. 2. Having a minimum investment period From a provider perspective, it is preferable that any long-term savings product comes with some form of minimum investment period to allow providers to invest and match the long-term liabilities. While we appreciate the aim of this would be to increase consumer engagement in the PEPP, pensions are complicated, long-term products. Improved yields in retirement are obtained through investment in (generally but not exclusively) illiquid assets, which would not be possible without a minimum investment period. As such, it would be difficult to envisage a situation where consumers would be provided with a product which provides an adequate return when investment choices could not be done on a sufficiently long-term basis. The minimum investment period could potentially be set by the provider, as they could tailor this according to national practices and local consumer behaviour. 3. Taking into account national practices The objective of the PEPP, or of any retirement income product, should be to create a product which could serve to provide an additional (or alternative) pension revenue stream and security for those who are not already adequately covered by either pillars one (state pension) or two (occupational pension). However, the PEPP needs to be flexible enough to take into account national market practices and so should not take a one-size-fits-all view (or standardised approach) with any pension proposition given the vast differences between the pension system structures across the EU member states. If the PEPP is too prescriptive, it will lack consumer demand and consequently investors would be less likely to invest in the product. As highlighted in the Association of British Insurers (ABI s) response to EIOPA s consultation on the creation of a standardised PEPP, the UK has recently undergone radical reform to its pension system, under the Freedom and Choice reforms. These reforms have effectively removed the need to annuitize upon retirement and other reforms have removed the notion of a fixed retirement age (although there is a minimum retirement age of 55 years). These reforms have fundamentally changed the way in which consumers and providers view pensions, i.e. from a retirement income product to a more general, flexible savings product. These radical pension reforms demonstrate how consumer expectation can vary between member states. If they are not able to benefit from the full pension features, which are available from local 15/53

16 products, they are unlikely to deem that their needs have been met, or that they have been treated fairly. Aside from these challenges, given that there has been no comprehensive impact analysis or study to support the need, demand and attractiveness of this product across the EU, it is not clear that there would be sufficient consumer and provider demand for this product, particularly in the UK market. 2. Would you offer the PEPP on a cross-border basis and, if so, why? Would you make a distinction between offering the PEPP either via the freedom of establishment (i.e. offering the PEPP in another Member State from your Member State of origin) or via the freedom of services (i.e. offering the PEPP in another Member State whilst remaining in your Member State of origin)? 2 Allianz SE Allianz could offer PEPPs either way, making use of its European subsidiaries and offering PEPPs from each of these subsidiaries in all other Member States on a freedom of services basis, allowing best to follow our clients needs and preferences. 2 Insurance Europe Insurance Europe believes that, to appropriately answer this question, further information on PEPP s final design and regulatory framework would be needed. In particular, PEPP s product passport concept cannot be fully assessed, given that EIOPA does not address the following key issues: Information to notify the host member state authority Authorisation procedure, either based on the notification or on a subsequent authorisation from the host member state authority Language applicable to the procedure Furthermore, the product passport is relevant if there is a level play field between all (types of) PEPP providers. 2 APK See above 16/53

17 2 APFIPP - Portuguese Association of Investment Funds, Pension Funds and Discritionary Asset Managers One of the keys to the success of PEPP is the possibility of it being sold on a cross border basis, and obviously, potential Portuguese PEPP providers will offer it on a cross border basis. This could be done by local branches of financial institutions belonging to the same financial group as the PEPP provider, through distributors or through the internet. 2 Fidelity International We would be likely to offer a PEPP across borders via the freedom of services 2 ICI Global We understand that some providers will be interested in providing PEPPs on a cross-border basis. Also, see the Answer to Question 1, above. 2 Mefop S.p.A. Mefop understands that one of the main characteristics of a PEPP is the product passport. Therefore, it appears unclear why a provider should prefer offering a PEPP abroad via the freedom of establishment. However, in order for passporting to work the host country has to make country specifications for the PEPP transparent and all Member States should have robust approaches to address potential consumer detriment issues. 2 VOEIG We would offer the PEPP cross-border as we have experience with cross-border selling in the UCITS regime. We would prefer remaing in our Member State of origin, the need to establish an entity in another Member State would be related to costs and would hinder us to provide the product in a wide range of countries 2 Assogestioni Yes, there is a strong interest in the cross-border selling of PEPPs. The latter should be allowed both via the freedom of services and the freedom of establishment principles, following the UCITS IV rules. 17/53

18 2 Zurich We would prefer the PEPP to be offered via the Freedom of Services principle as this better suits the business models we prefer. IF we chose to enter the market it would be our intention to provide the PEPP on a cross border basis, although the legal structure could vary per market. 2 GDV German insurers would offer the PEPP whether cross-border or not - if the product features were defined in an appropriate way. The market entry can be approached in several forms of which direct cross-border sales are only one. Market integration in the life insurance sector, however, is often realized through national subsidiaries. Pensions are contracts based on trust. Therefore, the reputation of providers or preferences of consumers for specific marketing channels have to be taken into account. This could lead to a provider s decision to market personal pension products through national subsidiaries instead of cross-border sales. 2 European Federation of Insurance Intermediaries (BIPAR) We believe that cross-border business by intermediaries could increase if more clarity would be brought on the triggering element of the FOS activities of an intermediary. This would create more legal clarity (general good rules and stricter information requirements of the host Member State may have to be complied with by the intermediaries when they are considered as carrying out FOS in that Member State). Tax and social security factors will however continue to impact the system and potentially remain an important barrier. With regard to question 3, considering the way the question is asked, we wonder how the answer will be interpreted? If we answer important, does that then mean e.g. that we believe that it is important that the factor switching is absent or that it is important that the factor switching is present? With regard to question 3, points b, and c we believe this will depend on the situation of the client/buyer and for point d, we believe that administration, development, management, distribution and advice of a product have a price, independently by whom and how it is offered. 18/53

19 2 Standard Life We do not believe a PEPP can be delivered without further tax harmonisation. If we were to see a business case for offering a PELS we anticipate it would be on a freedom of services basis. 2 FFSA FFSA believes that, to appropriately answer this question, further information on PEPP s final design and regulatory framework would be needed. In particular, PEPP s product passport concept cannot be fully assessed, given that EIOPA does not address the following key issues: - Information to notify the host member state authority - Authorisation procedure, either based on the notification or on a subsequent authorisation from the host member state authority - Language applicable to the procedure Furthermore, the product passport is relevant if there is a level play field between all (types of) PEPP providers. 2 ABA The question providing PEPPs via freedom of establishment or via freedom of services will highly depend - on the standardization of the PEPP resp. the modifications by the Member States and - the relative attractiveness of PEPP compared with existing pension schemes and pension products. Even for providers it will be difficult give an answer at this stage. 2 ABI While the ABI recognises the potential role the PEPP could have in complementing retirement savings in member states with a less developed pension system, a number of practical considerations still need to be addressed for it to be effective across the EU. Given the lack of any clear consumer demand in the UK, we remain unconvinced that the PEPP would be an attractive product for UK insurers to sell on a cross-border basis. Nevertheless, it is difficult to answer this question without knowing the specific characteristics of the PEPP. Until the features of this standardised product is known, and any associated carve out of the national taxation systems, insurers cannot determine 19/53

20 whether it would be commercially viable to enter other markets and offer this product. There are many challenges that would need to be addressed, as highlighted in question 1. In addition to this, we would need further detailed information on: - The conduct regulatory framework that will be established; - Whether the option of switching between a PEPP and a national personal pension product is still envisage as this would impact the valuation of assets; - How the taxation challenges, as highlighted in the ABI s response to EIOPA s previous consultation, would be overcome; - A dispute resolution framework; - How the PEPP would effectively compete with national products; and - What investment options would be available, including any mandatory default options containing a guarantee. 3. How important is the presence or absence of the following factors, basing the answer on one of the three options very important, important and not important : a. Free switching of the investment only at defined intervals? If so, how often? 3a Allianz SE Very important as seldom as possible, otherwise clients will be deprived of the benefits of a long-term asset allocation (illiquidity premium). 3a Insurance Europe Very important How often? The first period should be sufficiently long, ie 10 years. 3a APK - APFIPP - Portuguese Not important 20/53

21 Association of Investment Funds, Pension Funds and Discritionary Asset Managers (from response to Q.1) Regarding Question 3a, we believe that free switching of the investment is Very Important. Investors must be able to switch PEPP within the same provider or between different providers if they are not satisfied with the performance of their current PEPP or if they consider that another PEPP will perform better in the future or is more adequate to their personal characteristics. It is our understanding that PEPP s investment policy should be similar to the investment policy of UCITS with the exception that PEPP s should be able to invest in long term illiquid assets, such as SMEs and infrastructures, up to a maximum of 30%, the remainder being invested in UCITS eligible assets. For that reason, we do not consider important to allow free switching only at defined intervals. If PEPPs are designed in the way referred (UCITS-like, with the possibility to invest up to 30% in illiquid assets), we see no reason to impose any limitation to switching between PEPPs, which means that the frequency could be daily. In Portugal, local PPP, called PPR Plano de Poupança Reforma, may invest in illiquid assets such as real estate and AIFs (up to a limited percentage) and there is no limitation regarding the frequency of switches. This being said, what we observe, in practice, is that despite the non existence of any limitation to the number and frequency of switches, the large majority of investors do not switch their product or switch it only a limited number of times before they retire. Notwithstanding what has been referred, if PEPPs were required to invest a greater part of their portfolio in illiquid / long-term assets (which in any case we would not agree with), then it could be advisable to impose switching gates, with adequate pre-notice, to allow PEPP providers to meet the switching demands without prejudicing the other investors. In this case, we consider that there should be at least two switching gates every year. 3a Fidelity International very important Providers should be allowed to limit one switch without charges after the saver has held the product for five years. 21/53

22 3a ICI Global Important // With reasonable frequency that fosters competition. 3a Mefop S.p.A. Not important 3a VOEIG Not important 3a Assogestioni Very important// Once a year 3a Zurich Important// Three years 3a GDV very important 3a European Federation of Insurance Intermediaries (BIPAR) Important // 3a Standard Life not important 3a FFSA Very important // This depends upon the situation of the client/buyer (investment mix). The choice of intervals for switching will furthermore depend on the product. The first period should be sufficiently long, ie 10 years. 3a ABA Important// 22/53

23 3a ABI In Germany a switch of the product / provider is (not free of charge) feasible with 3rd pillar products but in general not foreseen in occupational pension schemes (of the 2nd pillar; only in the event of a change of employer). very important // Any minimum investment period ought to be determined by the provider of the PEPP who would be able to set it according to national market and local consumer behaviour. b. Requirement that default fund be life-styled? 3b Allianz SE Important thereby, it is our understanding that life-style in this context means that the individual age of the beneficiary is taken into account. 3b Insurance Europe Not important It is also our understanding that the default product is not necessarily a fund but can be an insurance product. 3b APK - APFIPP - Portuguese Association of Investment Funds, Pension Funds and Discritionary Asset Managers Not important (from Q1) Regarding Question 3b, APFIPP understands the reasons behind a default option but we believe that PEPP providers should have enough freedom to decide the investment options they intend to offer their current and potential clients. This includes not being forced to offer a default option, if the PEPP provider so chooses, 23/53

24 even in the case it offers more than one investment option. It should be noticed that a default option is only workable if the PEPP provider is also the distributor or if the distributor only sells PEPPs from a unique provider. Otherwise, the distributor will be offering as many default options as the number of providers of the PEPPs that it distributes, which poses the question of which default option should be offered to the client. Additionally, we find it hard to have a single default option that suits every client, because they have different personal characteristics, such as age, attitude towards risk, level of income / wealth, etc.. In the case of PEPP being a vehicle with strict investment rules just like we have with UCITS this will be a sufficient standard and therefore a default option will not be necessary. This being said, if the PEPP provider wishes to offer a default option, we also consider that the default option does not need to be life-styled. The PEPP provider should determine, based on its skills and competences and also on the characteristics of its current and potential clients, what the default option should be. This does not mean that we oppose that the investment option is life-styled, we just consider that this option should not be mandatory. 3b Fidelity International Very important 3b ICI Global Very important 3b Mefop S.p.A. Not important 3b VOEIG Not important 3b Assogestioni Very important 3b Zurich important 24/53