Pan-European pensions - the 26th regime
A very influential group called the European Financial Services Round Table (or EFR for short) has just launched an initiative which is effectively looking to set up a framework for an EU single market for personal pensions. The group acknowledges that much is already underway in Europe to get some kind of coherent pension policy cobbled together, but it thinks things should move a bit faster and that a kind of ‘kick start’ is what is really needed.
The current moves on pensions in Europe, it seems to me, are aimed at gaining agreement to core issues, like adequate funding levels for occupational schemes for instance, and then getting those agreements embedded in the pension rules and regulations in the national structures of the various Member States. This is more or less what a big part of our current Pensions Bill is all about – loads of that, as you know, is driven by the requirement for the UK to comply with European edicts. The EFR’s proposal, in a nutshell, is that a pan-European regime for personal pensions should be created that would be able to exist alongside the existing structures.
Now, this is interesting in that it would mean in practice that products ‘approved’ at a European level could be sold in the Member States (including the UK) alongside locally approved pension products. You don’t need to think about that for long before you can see how radical a move it will be if it comes off.
This approach is known as “the 26th Regime” for some reason or other, something to do with the fact that there are 25 Member States, but whatever it’s called it has the potential to be one of the biggest upheavals we’ll ever see to our pension system as it would effectively mean we would have two separate sets of rules applying in our market. If that, or anything like it, happens then I would say the things we’re fiddling around with here in our Pensions Bill will seem less important in the real life future we seem to be heading for.
The main features of the personal pension product the EFR is proposing will make it look very much like the UK personal pension model, but with some significant differences. To start with, the EFR appears to be opposed to the whole notion of price caps and that’s a pretty significant difference to our Stakeholder approach in the UK. As they put it in their report “There should be no uniform fee level across the EU. Each pension provider should be free to set fee levels it requires to cover its costs. [This] will allow EU-wide competition between providers.” The suggested EU-wide product is referred to as a ‘European Pension Plan’ or, confusingly for those of us in the UK, an EPP for short. These EPPs will be able to be held as individual contracts or as part of a group contract just as our own personal pensions can be used to form a Grouped Personal Pension (GPP). I’m pleased to note that the proposed structure of tax incentives for these EPPs is recommended to be on the EET model that regular BeeLiners will know I’m pretty keen on being retained for our locally grown pension products. (Anyone who wants to re-read my earlier BeeLine on the wonders of EET can click here if they want to. It’s a free country.) EEE, or tax-free cash if you prefer to call it by its proper name, will also be allowed up to 25% of the fund value to match local UK rules.
There are also some interesting suggestions regarding so-called ‘zero-risk options’ under which providers will be required to guarantee that the accumulated value of the pension plan at retirement will not be less than the contributions which were paid into the plan, and the ability for people to get money out of their pension pots in the event of serious illness.
I’ll let you know what I find out about this and other European developments in the pipeline when I return to Blighty later in the week and then we’ll all get our thinking caps on to bring you more local pension news next week as I’ve just been told that Adair Turner’s Pension Commission will be publishing its interim report on the 12th of October. You know, that’s the compulsion one. I’m sure I’ll have loads to say about that and the trials and tribulations of our Pensions Bill as it struggles ever onwards and upwards in its last few important weeks before the Queen’s Speech on 23rd November. I mean, is it me or are pension issues going bananas at the moment or what?
Anyway, ciao for now amigos…
4 October 2004
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