Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-10T14:07:55.022Z Has data issue: false hasContentIssue false
  • English
  • Français

Personal pensions with risk sharing*

Published online by Cambridge University Press:  08 August 2016

LANS BOVENBERG  and
THEO NIJMAN
LANS BOVENBERG
Affiliation:
Tilburg University, Netspar, Tilburg, Netherlands (e-mail: a.l.bovenberg@uvt.nl)
THEO NIJMAN
Affiliation:
Tilburg University, Netspar, Tilburg, Netherlands
Get access Rights & Permissions [Opens in a new window]

Abstract

To improve the design of the pay-out phase of DC plans, this paper proposes a new approach to structure pension products: the Personal Pension with Risk sharing (PPR). By unbundling and valuing the investment, (dis)saving, insurance and risk-sharing functions of pensions, PPRs allow risk management and (dis)saving to be customized to the specific features of heterogeneous individuals. Unlike variable annuities, PPRs allow investment risks to be combined with longevity insurance without giving rise to high year-on-year volatility in consumption streams or opaque and rigid valuation and smoothing rules. The synthesis of a PPR structure provides new opportunities for product innovation and for the comparison of retirement products.

Keywords

D14D91E21E62G11G22G23G28H31H55J14J18J26J62P43Private pensionsdefined benefitdefined contributionrisk managementrisk sharingvariable annuities
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 16 , Issue 4 , October 2017 , pp. 450 - 466
Copyright
Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

This paper is written as part of the Seventh Framework Program: MOPACT. Grant agreement number: 320333. Theme: SSH.2012.3.1-1. Work Package 4. The authors thank Casper van Ewijk and Roel Mehlkopf for helpful comments on an earlier draft. Errors and misperceptions remain the exclusive responsibility of the authors.

References

Ambachtsheer, K. (2014) Taking the Dutch pension system to the next level: a view from outside. In Bovenberg, A. L., van Ewijk, C., and Nijman, T. E. (eds), Toekomst voor aanvullende pensioenen, Preadviezen van de Koninklijke Vereniging voor de Staathuishoudkunde 2014. Amsterdam, The Netherlands: Joh. Enschedé, pp. 17–45.Google Scholar
Bovenberg, A. L., Mehlkopf, R., and Nijman, T. E. (2014) Techniek achter persoonlijke pensioenrekeningen in de uitkeringsfase. Netspar Occasional Paper.Google Scholar
Bovenberg, A. L., Mehlkopf, R., and Nijman, T. E. (2016) The promise of defined ambition plans: lessons for the United States. In Mitchell, O. S. and Shea, R. (eds), Reimagining Pensions: The Next 40 Years, Oxford University Press, Pension Research Council series.Google Scholar
Brown, J. R. (2001) Private pensions, mortality risk, and the decision to annuitize. Journal of Public Economics, 82(1): 29–62.CrossRefGoogle Scholar
Brown, J. R., Kling, J. R., Mullainathan, S., and Wrobel, M. V. (2008) Why don't people insure late-life consumption? A framing explanation of the under-annuitization puzzle. American Economic Review, 98(2): 304–309.CrossRefGoogle Scholar
Brown, J. R., Kling, J. R., Mullainathan, S., and Wrobel, M. V. (2013) Framing lifetime income. NBER WP19063.CrossRefGoogle Scholar
Hanewald, K., Piggott, J., and Sherris, M. (2013) Individual post retirement longevity risk management under systematic longevity risk. Insurance: Mathematics and Economics, 52: 87–97.Google Scholar
Horneff, V., Maurer, R., Mitchell, O. S., and Rogalla, R. (2013) Optimal life cycle portfolio choice with variable annuities offering liquidity and investment downside protection. Michigan Retirement Research Center, WP 2013-286.CrossRefGoogle Scholar
Piggott, J. and Bateman, H. (2010) Too much risk to insure? The Australian (non-)market for annuities. Center for pensions and Superannuation. UNSW DP 1/10.Google Scholar
Valdés-Prieto, S. (2000) The financial stability of notional account pensions. Scandinavian Journal of Economics, 102(3): 395–417.CrossRefGoogle Scholar
Valdés-Prieto, S. (2006) A market method to endow NDC systems with automatic financial stability. In Holzmann, R. and Palmer, E. (eds), Pension Reform, Issues and Prospects for Non-Financial Defined Contribution (NDC) Schemes. Washington, DC, USA: The World Bank, pp. 149–169.Google Scholar
van Bilsen, S. (2015) How to invest and draw-down accumulated wealth in retirement? A utility-based analysis. Mimeo, Tilburg University.Google Scholar