Cross-border 3rd pillar pensions soon ?

A new EIOPA consultative paper deals with cross-border 3rd pillar pensions. An interesting market opportunity for all Luxembourg based banks, insurance companies and investment managers.

In a recent consultation paper EIOPA has re-launched the idea of cross-border 3rd pillar pensions. The project is called PEPP (Pan-European Personal Pension product). EIOPA refers to a so-called "2nd regime" as there are already a large number of local rules and products which are purely designed for domestic markets.

Currently mobile workers are obliged to take out several consecutive contracts if they move from country A to country B. It would be more efficient to have all their private pension savings in one single contract. Furthermore, EIOPA also expects more competition (and lower fees and better returns for customers) in this market if more providers compete in this market. The Assets under Management in private 3rd pillar pension contracts amount to 1'800 Bn EUR today. 93 % of the underlying assets are in insurance contracts. The idea is to have insurers, banks pension - and investment funds as eligible providers for such a 2nd regime pension in the future.

The potential hurdles to such an initiative are different prudential regimes. While banks have to comply with CRD 4, insurance companies fall under Solvency 2 while pension - or investment funds have no comparable own funds requirements. Furthermore, cross-border contracts of insurance companies have to comply with insurance contract legislation in the host country, while banks for instance can rely on the contract law in their home country. In order to eliminate these discriminations, the "2nd regime" is only viable if the product follows a "sui generis" own funds and contract regime. The contract regime can only be the home country contractual environment.

The deadline for comments has been set at 5 October 2015 and the consultative paper can be downloaded on the EIOPA website.