The SDA Bocconi School of Management has published the study “Consumer protection and the design of the default option of a pan-European Personal Pension Product”. The study was commissioned by the European Fund and Asset Management Association (EFAMA).
The study is a useful academic contribution to the debate on whether the PEPP should offer a default investment option with a financial guarantee, or whether the default option can rely on a life-cycling technique consisting of reducing the proportion of risky assets in the PEPP portfolio as retirement approaches.
Backed by a variety of economic arguments, the study concludes that the inclusion of life-cycle investment strategies as default option in the PEPP is economically desirable for consumers, who would benefit from superior returns and comparatively low risk compared with bonds, over a long investment horizon. The study also illustrates the advantages of life-cycle investment solutions in terms of risk mitigation and performance enhancement.
Dowload the study here.