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

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.