Pension Contracts and Risk Sharing – A Level Playing Field Comparison

13 Pages Posted: 4 Mar 2016

See all articles by Jurre Haan

Jurre Haan

APG

Zina Lekniute

University of Amsterdam

Eduard H.M. Ponds

Algemene Pensioen Groep (APG); Tilburg University - Department of Economics; Netspar; Tilburg University - Center for Economic Research (CentER)

Date Written: March 2015

Abstract

Many countries witness an ongoing debate on how current pension contracts could be improved, compare for example the Netherlands and the United Kingdom regarding 2nd pillar pensions. A recurring and important question is whether and to what extent it is desirable to share risks in a pension contract. The UK Government is introducing new legislation to facilitate the development of shared risk schemes and collective benefits in the UK.

Collective pension schemes with alternative models of risk sharing already exist, or are in development, in a number of countries outside the UK, including the Netherlands, Denmark and Canada. This study aims to contribute to the UK pension debate by addressing the quantitative impact of risk sharing within pension contracts. Therefore, we evaluate the performance of an individual (no risk sharing) and a collective (with risk sharing) pension contract based on an ALM model. We make use of a stylized model and construct a level playing field between these contracts in order to show the quantitative advantages of sharing risks between generations. This paper evaluates a risk sharing contract which is inspired by the recent Dutch discussion which could be interesting for the UK discussion as well.

Keywords: risk sharing, CDC, defined contribution

JEL Classification: H55

Suggested Citation

Haan, Jurre and Lekniute, Zina and Ponds, Eduard H.M., Pension Contracts and Risk Sharing – A Level Playing Field Comparison (March 2015). Available at SSRN: https://ssrn.com/abstract=2741542 or http://dx.doi.org/10.2139/ssrn.2741542

Jurre Haan

APG ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Zina Lekniute

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Eduard H.M. Ponds (Contact Author)

Algemene Pensioen Groep (APG) ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Tilburg University - Department of Economics

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Center for Economic Research (CentER) ( email )

Tilburg

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