Profit-Sharing and Personal Pension Products: A Proposal

The European Insurance and Occupational Pensions Authority (EIOPA) considers retirement contractual formulas very significant in terms of the socio-economic context as well as for evaluating existing critical issues in the public pension systems. Besides, the technical committees involved in the matter are tackling the fragmentation of the private pension world in relation to both product design and schemes, and also consumer protection. For these reasons, in 2015 the European Monitoring Commissions came up with a public consultation for the creation of individual membership pension funds sharing standardized rules in all EU countries. Further, in 2016 EIOPA brought a technical report containing a proposal for Pan-European Personal Pension Products (PEPPP) to the attention of the European Commission, where Collective Profit Sharing Products were carefully considered, with the aim of protecting the members of insured pools from the volatility of long-term returns. Within an environment of low interest rates and continuous demographic changes, non-traditional life insurance products sharing the profit of the invested funds between the insurer and the insured parties may incentivize the underwriting of new contracts, if properly designed, audited and managed. In such a context, the paper develops a variable annuity pension scheme in which the insureds are entitled to participate in the annual financial results of the invested funds, with an embedded option to withdraw such results during the whole contract duration, that is, during both the deferment and the annuitization periods. The product performance evaluation is also carried out, with some addresses concerning the consumers’ perception of the contract profitability.