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Redistribution in collective pension arrangements without a sponsor guarantee: Hidden versus explicit risk transactions

Published online by Cambridge University Press:  15 October 2020

Lu Yi Open the ORCID record for Lu Yi [Opens in a new window] ,
Barbara Sanders Open the ORCID record for Barbara Sanders [Opens in a new window]  and
Jean-François Bégin Open the ORCID record for Jean-François Bégin [Opens in a new window]
Lu Yi
Affiliation:
Department of Economics, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina, USA
Barbara Sanders
Affiliation:
Department of Statistics and Actuarial Science, Simon Fraser University, Burnaby, Canada
Jean-François Bégin*
Affiliation:
Department of Statistics and Actuarial Science, Simon Fraser University, Burnaby, Canada
*
*Corresponding author. Email: jbegin@sfu.ca
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Abstract

In collective pension arrangements without a sponsor guarantee, assets and liabilities are commingled, and members' benefits are adjusted to reflect emerging plan experience. Stakeholders pay attention to the fairness of the intergenerational transactions arising from the inclusion of certain design elements; however, implicit intergenerational transactions exist even in pure collective defined contribution (CDC) arrangements without any such explicit stabilization mechanisms. In this study, we find that the implicit risk transactions are uneven: significant value transfers among cohorts can result from joining a pure CDC plan. We then compare these to the additional value transfers arising from explicit stabilization mechanisms.

Keywords

Asset and liability managementcollective defined contributionfunded pension schemeshybrid pension planintergenerational risk-sharing

JEL classification

G22: Insurance • Insurance Companies • Actuarial Studies J32: Nonwage Labor Costs and Benefits • Retirement Plans • Private Pensions
Type
Article
Information
Journal of Pension Economics & Finance , Volume 21 , Issue 2 , April 2022 , pp. 260 - 293
Copyright
Copyright © The Author(s), 2020. Published by Cambridge University Press

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