Article 14
Objective of the risk-mitigation techniques
1. When using the risk-mitigation techniques for the investment strategy of the PEPP, PEPP providers shall set up an objective in line with the specific retirement objective of the PEPP saver or a group of PEPP savers, in accordance with the conditions referred to in Article 47(2) of Regulation (EU) 2019/1238.
2. The PEPP provider shall design the risk-mitigation technique in a way to achieve the objective of providing for stable and adequate individual future retirement income from the PEPP, taking into consideration the expected remaining duration of the PEPP saver’s or group of PEPP savers’ individual accumulation phase and the PEPP saver’s chosen decumulation option. To implement that objective, the risk-mitigation technique shall be designed in the following manner:
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(a) |
ensure that the expected loss, defined as the shortfall between the projected sum of the contributions and the projected accumulated capital at the end of the accumulation phase, is not higher than 20 % under the stressed scenario, which equals the fifth percentile of the distribution; |
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(b) |
aim at outperforming the annual rate of inflation with a probability of at least 80 % over a 40 year accumulation phase; |
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(c) |
take into consideration the results of stochastic modelling. |
3. For the Basic PEPP, when the PEPP provider does not offer a capital guarantee as referred to in Article 13, the PEPP provider shall employ an investment strategy that ensures, taking into consideration the results of stochastic modelling, recouping the capital at the start of the decumulation phase and during the decumulation phase with a probability of at least 92,5 %. However, where the remaining accumulation phase is equal to or less than 10 years when taking up the Basic PEPP, a probability of at least 80 % may be used when employing the investment strategy.
4. When designing a risk-mitigation technique for a group of PEPP savers, the PEPP provider shall design the risk-mitigation technique in such a way as to ensure a fair and equal protection of each individual PEPP saver within the group and shall disincentivise opportunistic behaviour of individual PEPP savers within the group.
5. PEPP providers shall ensure that any performance-linked remuneration of individuals acting on behalf of the PEPP provider and implementing the risk-mitigation techniques is conducive to the objective of the risk-mitigation techniques.
6. PEPP providers shall safeguard the appropriateness, efficiency and effectiveness of the risk-mitigation technique through a dedicated process and provisions within the product oversight and governance framework, as required by Article 25 of Regulation (EU) 2019/1238. That framework shall be subject to a supervisory review and to supervisory reporting.
7. Where a PEPP saver chooses a different investment option according to Article 44 of Regulation (EU) 2019/1238 or switches the PEPP provider according to Article 20(5) or Article 52 of that Regulation, the PEPP provider shall fairly contribute the allocated reserves, if any, and the investment returns to the leaving PEPP saver. The PEPP provider shall ensure that the allocation is equally fair towards the leaving PEPP saver and towards the remaining PEPP savers.
8. In the case of adverse economic developments within three years leading up to the expected end of the remaining duration of the PEPP saver’s accumulation phase, the PEPP provider shall extend the last phase of the life-cycle or the applied risk-mitigation technique by an appropriate additional time of up to three years after the initially expected end of the accumulation phase. Such extension shall be subject to the PEPP saver’s explicit consent and shall be done in accordance with the conditions referred to in Article 47 of Regulation (EU) 2019/1238.