Consumer Protection and the Design of the Default Option of a Pan-European Pension Product

Abstract

We address potential strengths and weaknesses of alternative protection schemes, which can be adopted as a ‘default option’ in a private, third pillar, pension product. In light of the observed behavior of savers adopting the ‘default option’ at international level, we perform a comparative analysis aimed at quantifying the costs and the benefits of two different risk mitigation techniques and market-standard investment products available to European consumers. We make the case for eligibility of life-cycle target-date funds as default option for the pan-European pension products.

Keywords: Life-Cycle Saving, Household Finance, Guaranteed Strategies

JEL Classification: G11, D14, D91