What is the option guarantee, Option (finance)

Necessary protection for European savers or an unwanted provision that will damage future pension income? Delbeque accepts that reaching a decision on the default option will not be easy in the face of potential political opposition, not least from the centre-left, in the European Parliament.

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Simone Miotto, senior policy adviser, says this is so PEPPs can accommodate different business models to encourage provider uptake. It says there should be a default option allowing providers to include a what is the option guarantee guarantee or other risk-mitigation strategies, such as a life-cycle strategy. Miotto notes that European pension savings are concentrated in countries like the UK and the Netherlands.

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Boosting pension savings overall by channelling assets from other sources, such as bank savings and putting them to work in longer-term investments, would be beneficial overall. Other organisations are generally supportive of PEPP. Funded systems, as in the UK, are in deficit, while pay-as-you-go schemes, as in France, are being undermined by the severe decrease in the ratio of workers to retirees.

Yet he cautions against a debate that focuses only on the merits of guarantees versus life-cycle options when neither provides for income in retirement. Replacement income, not absolute wealth, should be the focus, he stresses. According to a paper, the European Council was concentrating on generalities, but with a positive tone.

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