The SRRI and Personal Pension Funds

Regulatory tendencies in the European Union have increased since the crisis of 07/08. The regulator has imposed a new set of prudential rules to increase the stability of financial markets; one of the focuses was the transparency of costs and fees for customers regulated through Mifid I and II. However, most of these regulations have not had any impact on the third pillar of pension systems - such as voluntary personal pension funds. They are currently regulated mostly by national directives but the EU wide regulators will centralize regulation and introduce a Pan European Personal Pension Product (PEPP) in the coming months. In the light of modern demographic developments, such as raising life expectancy, lower birth rates and the generation of baby boomers to retire soon, the dependency ratio is rising and will most likely continue to rise. The future of state funded pensions is uncertain. Saving money might not be enough to preserve purchasing power. In this thesis I discuss based on proxies from which risk level onwards (based on the regulator's classification), investments are able to overcome the inflation threshold. I come to the conclusion that this is category 4 based on the Synthetic Risk and Reward Indicator (SRRI) categorization. Summarizing, investments in lower categories might not be beneficial for investors. As the PEPP is supposed to have a default option, the risk category of this option will have a huge impact on the financial well-being of future generations once they retire if they choose this investment vehicle.