The European Commission (EC) needs to take “decisive action” on supplementary pensions to end the “insufficient long-term financial performance” that “too many of these solutions” have demonstrated, Better Finance has urged.
In its response to the EC’s Targeted consultation on supplementary pensions, Better Finance welcomed the review of the EU framework on supplementary pensions.
However, it cited its most recent annual research on pension products, which showed that for one out of 40 product categories, the median 10 year annualised performance after costs and inflation was 0.6 per cent (0.8 per cent for occupational pensions, 0.1 per cent for personal pensions), with some personal pension products returning a loss of up to 2 per cent of the actual value of savings.
Better Finance argued that, currently, in many cases, pension savers would be better investing directly into the capital markets, in terms of investment outcomes. It compared the returns of pension products with a hypothetical, rather conservative, investment portfolio of European equity and bonds and found that 34 out of 48 product categories failed to beat that benchmark.
“Better Finance then urges the commission to take decisive action to reform the supplementary pensions framework to ensure that, first, EU citizens, as pension savers receive appropriate information to draw adequate financial plans for their retirement and select the pension saving products that are most likely to generate an improvement of their purchasing power at retirement,” its response stated.
In addition, it said it was “crucial” to ensure pension savers are “empowered to take the decisions necessary to improve their retirement plans”. This, it said, should be done through the provision of “clear, comparable, reliable information” about their pension savings across all pillars. It believes this is a necessity for “accurate” retirement planning and pension product selection.
“We strongly believe that basic information about accrued benefits, costs and performance are the core pieces of information that a pension saver should receive from its supplementary pension scheme managers, whatever the specific form (occupational vs. personal, insurance-based or else) of those supplementary pension schemes,” it wrote.
It also argued for a “thoroughly revised packaged retail and insurance-based investment products (PRIIPS) key information document” for personal pension products (PPPs).
Furthermore, Better Finance said that a standardised set of “fundamental information” about supplementary pensions across all pillars would facilitate the development of comprehensive pension tracking systems (PTS) and long-term investment product comparison tools, overall empowering pension savers.
Therefore, pensions dashboards should be more than a tool for policymakers and instead be used to provide an “aggregate view” of the pension landscape in an individual’s country to help them assess their situation in comparison to the rest of the population and the performance of their pension products in comparison to the market.
Finally, it said that pension savers must be able to act when they believe that they are not on track with their pension plans. This includes being given the right to take their savings out of an underperforming plan and place them into a pension scheme that will provide them with a better solution with the “right balance of performance and safety”.
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