25 April 2013

EIOPA publishes survey of EU practice on default investment options

The pensions landscape has continued to evolve across Europe with a steady shift from DB provision to DC provision. This has meant that risks previously borne by employers and pension funds (investment, longevity, inflation risks) are now being partly or entirely borne by pension plan members.

These DC pension plans increasingly allow individual members some degree of choice about how to invest their plan contributions and a much greater degree of responsibility for ensuring the optimal asset allocation. Typically a range of investment funds is offered to them and they may choose one or more. Many DC plans also have a default option into which members’ contributions are automatically placed if the member does not actively choose an investment fund.

While the responsibility for ensuring that the risks in the plan are managed and assets are invested in a cost efficient and optimal way resides with the member, supervisors may be involved in trying to ensure adequate protections for members. This report is aimed at reviewing current practice in the use of multiple investment options, defaults and life styling and what (if any) rules have been introduced by member states.

In order to make an inventory of existing approaches and practices among Member States with regard to investment options for pensions where members bear the investment risk and have investment choices, an Occupational Pensions Committee (OPC) workgroup ran a fact finding exercise among all Member States. The aim was to map the current situation, to get acquainted with similarities/differences in existing approaches and to identify possible gaps between approaches chosen.

Member States were asked a number of questions (19 in total) and were asked to provide relevant information for all pillars of pension provision, i.e. state, occupational and personal.

The majority of Member States have provided answers although some of them were limited due to the fact that there is a great variety of pension design across Europe and therefore some of the questions were not applicable to the respective Member States' pension products. In some cases supervisory authorities’ involvement in the process of provision of multiple investment options and default funds was too limited to provide reasonable information due to the fact that usually this issue is negotiated between provider and customer on a voluntary basis, and is tailored to the specific contract.

RO and BG were considered out of the scope because in these Member States pension schemes do not have investment choices and default funds. Since the scope of project was wider than occupational pensions, some EIOPA members, e.g. GR and CY, were considered out of the scope because the pensions under their supervision do not have investment choices and some of pension products/providers are supervised by other competent authorities.

Full article

© EIOPA