The European product family has another KID on the way

Following the publication in 2019 of the Pan-European Personal Pension (PEPP) Regulation, the European pensions regulator, EIOPA, recently issued draft regulatory technical standards (RTS) setting out the instructions for a PEPP key information document (KID).

The point of a PEPP is that it will allow clients to continue to save for their retirement outside of a company pension scheme if they move to another country within the EU, while continuing to receive all relevant reliefs and benefits applicable to each country. This will be done through a separate sub-account in the PEPP for each Member State in which it is available.

Before a PEPP can be offered for sale, the provider must register it with EIOPA. Providers may be insurance undertakings, UCITS or AIF managers, MiFID authorised portfolio managers, credit institutions or institutions for occupational retirement provision (IORPs).

PEPPs will need to offer sub-accounts for at least two EU countries in which they are distributed, although they won’t need to cater for every country. PEPPs can’t be distributed in a country for which they don’t have a sub-account.

As you might expect, given the complexity of pensions compared to other investment products, a PEPP KID will be longer and contain more information than a UCITS KIID or a PRIIPs KID. Additional factors include how and when benefits may be taken, death benefits, capital guarantees, payment obligations before and after retirement, and so on. To cope with all of these, the PEPP KID will run to five pages, compared to two for a UCITS KIID and three for a PRIIPs KID.

Those familiar with UCITS KIIDs or PRIIPs KIDs will recognise many of the sections on a PEPP KID. There are six sections in all, covering the same areas as existing key information documents, but there is more to a PEPP KID.

From a high-level viewpoint, five of the six sections look familiar:

What is this product?
What are the risks and what could I get in return?
What happens if the provider is unable to pay out?
What are the costs?
How can I complain?

The sixth section is “What are the specific requirements for the sub-account corresponding to [my Member State of residence]?” and is where the provider will set out any conditions for the accumulation and decumulation phases.

However, that’s not the only difference between this KID and previous ones.

The “What is this product?” section includes a raft of questions and covers two of the five pages of the template in the RTS (although there are no rules on the length of each section). The questions in this section are the technical details about the product that a potential investor should know:

How is my money invested?
Who is this for?
Are my savings guaranteed?
What happens when I retire?
What happens to my PEPP savings if I die/become disabled/live longer than assumed in my PEPP contract?
What happens if I move countries?
Can I withdraw from the product early?
Can I switch provider?
Can I change my investment option?
Will my money be invested sustainably?
Is this governed by [Member State] law?
Can I cancel or change my mind?

Interestingly, given the long-running argument about past performance on PRIIPs KIDs, the RTS says “the section entitled ‘What is this product?’ … shall include a reference to the information on past performance … which shall be made available on the PEPP provider’s website”.

Finally, PEPP KIDs are to be published on the provider’s website in all countries where the PEPP is available. Unlike UCITS KIIDs and PRIIPs KIDs, the versions in every country won’t be identical, but will differ in specific ways. As the RTS says, “the PEPP provider should publish the PEPP KID for each Member State where the PEPP is distributed … containing the specific information for the conditions related to the accumulation phase and to the decumulation phase for that Member State.”