A note on the quantitative requirements for risk-mitigation techniques and the “Basic PEPP” for pan-European Personal Pension Products (PEPP).

The regulatory framework for the introduction of a Pan-European Private Pension Product (PEPP) aims on building a stable and adequate individual retirement income through the PEPP. It therefore includes, among other things, specifications on requirements for "risk-mitigation techniques", specifications for a “Basic PEPP” (standard variant) as well as specifications for calculating a risk and return indicator. The specifications require stochastic modeling to analyze future PEPP performance.

This talk summarizes the main requirements as well as the results of an analysis of the requirements for 20 different products resp. investment strategies (hybrid products as well as mixed and life-cycle fund products). It is based on analyses which the Institute for Finance and Actuarial Sciences (ifa) has performed in cooperation with the Austrian Insurance Association (Verband der Versicherungsunternehmen Österreichs, VVO).

In the current capital market environment, none of the products analyzed meets the specified requirements. The interaction of absolute requirements in the PEPP regulation and a calibration of the models used to the respective current capital market environment leads to a predictable high fluctuation of the results over time.