Unit-linked personal pension products generate higher returns than profit participation – EIOPA

Unit-linked personal pension products (PPPs) generated a higher return but were more volatile, than profit participation PPPs between 2015 and 2019, according to the European Insurance and Occupational Pensions Authority (EIOPA).

Its 2021 Cost and Past Performance Report analysed PPPs sold by insurance undertakings. The product categorises considered were the same as for insurance-based investment products (IBIPs) – PPPs similar to unit-linked (PPP-UL), those similar to profit participation (PPP-PP) and PPPs similar to hybrid (PPP-Hybrid), despite in some markets PPPs are not formally IBIPs.

Based on the information provided by 69 insurance undertakings from 14 Member States, more than 210 PPPs have been analysed: 125 PPP-UL, 53 PPP-PP and 38 PPP-Hybrid, accounting for ca. 1.4 million of contracts sold and ca. €27bn gross written premium (GWP) during 2019.

“As expected, the trend in the net return of personal pension products are similar to the ones observed for IBIPs, hence higher average yearly annual return but also higher volatility for PPP-UL in comparison with PPP-PP. The net return achieved in 2019 was also the highest for the period 2015-2019. Notably, the net return of PPP-UL resulted to be higher than the IBIPs unit-linked, 3.5 per cent vs. 2.7 per cent. The traditional longer investment horizon of PPPs could explain the higher return,” it stated.

In addition, it said the net return for PPP-ULs and PPP-PPs were “steadily positive” in all markets, especially for 2019 when the PPP-UL result was “extremely high across all markets”. In PPP-PP 2019 returns were similar but slightly lower than the annual average return for the previous five years, in all markets with exception of Italy, where
the 2019 was higher, EIOPA said.

“Despite the diversity in the number of product analysed per members states and the diversified landscape at national level on PPPs, trends amongst different markets are homogenous,” EIOPA found.

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