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Falco Valkenburg |
“#PEPP was today approved by #Coreper” was the first line of my February 13 tweet. I was pleased to hear the news that the Permanent representatives of the European Member States have approved the compromise text on a Pan-European Personal Pension (PEPP). There was, and still is, quite a bit of controversy about the PEPP Regulation. You can find a brief description of the most important unresolved issues in our latest Newsletter (Issue No. 14 – February 2019).
My own government (The Netherlands) voted against the adoption of the PEPP Regulation. I was saddened to read this in an official letter of the Dutch Minister of Finance to the Dutch Members of Parliament. The Dutch Minister of Finance summarises the four key points as the Dutch interest in the negotiations:
The Minister concludes that most of these key points have been achieved. Full autonomy with regard to second pillar pensions and taxation remains with the Member States. National Supervisors play a leading role and EIOPA only a “backstop” role. The number of delegated acts has not been reduced. So the majority of the most important points have been reached and yet our government has decided to vote against the Regulation. The reason? The PEPP Regulation only has limited added value for the range of pension products.
I am sad about this position of the Dutch government for a number of reasons. I do not think it is very courteous to fight for your negotiating effort, to get your points for the most part and then to vote against. The argument that the PEPP Regulation has limited added value for the Dutch market strikes me even more. Even if added value was indeed limited (I think there could be much more added value if we were open to it), why vote against it? It is a European Regulation. Why should the Dutch not support a European initiative that is beneficial for a large number of Member States, although it has only limited added value for the Netherlands? If it apparently has no negatives for our market, why not embrace the initiative? We can benefit from that. Dutch pension product providers may start selling their products in other Member States fairly easily, as long as they comply with the PEPP requirements.
PEPP is intended as a fairly straightforward pension savings product that is inexpensive, transparent and well-communicated. The Dutch learned their hard lessons in exactly this type of product that used to be very opaque, sold on the basis of creating very high expectations (high returns) and proved to be very expensive instead of low-cost. Together with my brother, I published a report on these products for the first time in 1994 and warned about the specifications and made suggestions for improvement. We repeated that three times in the period up to 2001. Some improvements were made, but it was still not good enough.
In 2004 it became a very big scandal. Insurers were summoned for billions of euros. New reports were published and concluded what in principle was established more than ten years earlier. These products must be transparent, but they are not. These products were sold merely by just delivering projections based on very high expected returns. The expense loadings turned out to be extremely high, as did the risk premium that had to be paid for the mortality risk.
Since then, the products have been simpler, cheaper and sold in a much more realistic way, including “bad weather” scenarios. They have become PEPP-like in times that PEPP was not yet invented. The big scandal is still in the news because it has proved extremely difficult to reach an agreement on financial compensation between insurers and consumers. As a member of the Appeal Committee of the Netherlands Financial Complaints Institute, I am considering some of these cases, nowadays, 15 years after it became a national scandal, 25 years after my first report.
I am convinced that we can and must learn from each other in Europe. Sometimes, as in this case, we can learn from a bad example. An example that shows very clearly how things should NOT be done. I did not go into this in depth, but I have seen some evidence that the practices of miss-selling, as seen in The Netherlands, can still be found in other Member States of the European Union. The PEPP Regulation is an initiative to support consumers in creating an environment in which simple, comprehensible, inexpensive products are available. This contributes to the objective of the European Union to ‘bring European countries together in practical cooperation’. I had hoped for a stronger contribution in this dossier from The Netherlands as one of the founding countries of the EU. I am very pleased with the supportive attitude of the Actuarial Association of Europe (see also https://actuary.eu/aae-publishes-initiatives-to-the-eu-parliament-and-the-european-commission/) and I am proud to serve on the Board.
This blog is written in a personal capacity.
4 April 2019
