The European Insurance and Occupational Pensions Authority (EIOPA) has published its Survey of EU practice on default investment options.
The survey was conducted as a follow up to EIOPA advice to the European Commission on the review of the IORP Directive, which stated that:
“EIOPA recognises the importance of multi-funds, default options and life-styling as essential features that help risk control and sound development of supplementary pensions when member bear the investment risks. EIOPA encourages the identification and diffusion of best practices in this regard”.
An important driver for the work was the steady shift towards defined contribution pension provision, where investment risks and the responsibility for optimal asset allocation, previously managed by professionals, were increasingly passed on to scheme members who usually do not have the relevant professional knowledge.
The survey found that:
- Multiple investment options are quite common in both occupational and personal pension schemes
- Default investment options are used only in about 50% of Member States - The use of lifestyling options is very rare
- If used, these features are mostly provided by an IORP or a pension provider voluntarily, with no specific requirement in legislation, as a result of an agreement between the provider and its customer
- Supervisors tend to get involved only where multiple investment choices or default options are a legal requirement, which means infrequently
- Although exact figures for the number of members that use default options are not available, there is a strong indication that, where default options are offered, the take up is very high.
EIOPA believes that well designed default options and any de-risking solutions contained in them as well as supervisory involvement pitched at the right level, are crucial determinants of the adequacy and protection of members’ retirement incomes in defined contribution schemes. Therefore, EIOPA’s work in this area will continue.