Classification of Private Retirement Provision

Since 2016, we have been classifying all retirement provision products that are subsidized by state allowances on behalf of the Product Information Office for Retirement Provision gGmbH (PIA).
Since the beginning of 2017, these products require a product information sheet in accordance with the Retirement Improvement Act (Altersvorsorge-Verbesserungsgesetz), which in particular identifies an opportunity/risk class (CRK). The Federal Ministry of Finance (BMF) has assigned the task of defining this CRK to PIA by way of a loan.



For the classification, possible market scenarios for the entire term of the products are generated on the basis of a market model for interest rate and share price development (PIA basic model) developed by us. Classification into one of five risk/reward classes is relative to reference portfolios, which determine the boundaries between the classes. Like the calculated CRK, these are reviewed annually on the basis of current market data.

The simulation takes into account the chosen contract form (classic life insurance, fund savings plan), the investment decisions of the management and the retained costs. According to the law, these scenarios are generated for sample customers with a time horizon of 12, 20, 30 and 40 years, who make monthly or one-time payments at the beginning of the contract.

PIA Basic Model as Industry Standard

In total, we have already carried out more than 1600 classifications. We are constantly developing individual aspects of the classification process, such as the annual calibration of the market model or the mathematical mapping of various assets. In addition, we have presented the theoretical principles and the research work on the topic in our book »Praxishandbuch Lebensversicherungsmathematik: Simulation und Klassifikation von Produkten« (VVW GmbH, 2019).

In recent years, the PIA basic model has established itself as the industry standard in Germany. On a European level, the PRIIPs regulation requires a market model that is recognized in the industry. The German Association of Actuaries (DAV) recommends the use of the PIA basic model for Germany; other countries (e.g. Austria) have adopted this proposal in an adapted form. Also in the area of occupational pensions, a Black-Scholes model with stochastic interest rates can be used to compare rates, similar to the PIA basic model.

An overview of the opportunity-risk class classification of various private pension products,
© Fraunhofer ITWM
An overview of the opportunity-risk class classification of various private pension products.
The value development of a private pension product
© Fraunhofer ITWM
The value development of a private pension product is simulated over time on different paths.