Conditional Indexation in Defined Benefit Pension Plans in the Netherlands

Bikker, Jacob A.; Vlaar, Peter

doi:10.1057/palgrave.gpp.2510140

Cited by 37 publications

(27 citation statements)

References 10 publications

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“…The results of comparative analysis of pension markets in Russia and OECD countries; 3) Measures to improve pension investment efficiency; and Conclusion. 1 Pensions at a In other countries, the real rate of return on the investment was positive and varied between 1.38% in Australia to 8.15% in Norway, which agrees with the conclusions drawn in the OECD review 6 .…”

Section: Introductionsupporting

confidence: 79%

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Inefficiency of pension investment regulation: case of Russia

Nepp¹

2017

Investment Management and Financial Innovations

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Inflation risks are one of the major factors faced by funded pension systems. Investment risks affect such key parameters of pension systems as the amount of pension contributions and payments. In order to limit the exposure of pension systems to such risks, governments have introduced instrumental and geographical restrictions on pension investments. These measures are particularly popular in developing countries. This article discusses the efficiency of pension investment regulation in Russia and demonstrates the inadequacy of the current regulatory measures. Authors show that the negative investment results of pension market players were caused by inefficient government regulation. Authors also show that pension market players should be given more freedom in their investments and that instrumental and geographical restrictions should be removed. Was proposed to diversify investment portfolios into stocks traded on the leading stock markets, which would allow to increase investment returns and maintain the risk at the current level. Thus, it would be reasonable to invest 76% of funds into foreign assets, which will increase pension benefits and the replacement rate by 2.54 times. If we keep the geographical barriers but lift the restrictions on equity investments, the growth will be 1.34 times.

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Section: Introductionsupporting

confidence: 79%

“…Russian institutional investors include pension funds, banks, investment funds, and insurance companies. The Russian pension fund by assets is the largest in Eastern Europe 1 . On the other hand, like other developed countries, Russia faces serious demographic problems, such as low fertility rates and ageing population.…”

Section: Introductionmentioning

confidence: 99%

Inefficiency of pension investment regulation: case of Russia

Nepp¹

2017

Investment Management and Financial Innovations

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“…Additionally, it believes that overly severe funding rules would compound the trend for pension fund sponsors to reduce guarantees or switch to DC plans. 11 …”

Section: Sustainable Dbmentioning

confidence: 99%

The ‘crisis’ in defined benefit corporate pension liabilities Part II: Current solutions and future prospects

Clark¹,

Monk

2007

Pensions Int J

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is a PhD candidate at Christ Church College, University of Oxford. His doctoral research focuses on the impact of competitive strategy and globalisation on the design and implementation of corporate benefi t systems. He holds graduate and undergraduate economics degrees from the Sorbonne (Paris I) and Princeton University, respectively.Abstract Once an integral component of company-sponsored compensation schemes in many Western economies, private defi ned benefi t (DB) pensions are in decline. For many, DB schemes (and their related healthcare liabilities, depending on the jurisdiction) have hobbled the fi nancial wellbeing of plan sponsors and even whole sectors of industry. If a constraint on shareholder value in the short term, these schemes threaten long-term corporate survival in the emerging global economy. While there remains considerable debate over the ability of fi nancial markets to adequately price DB liabilities, there is a growing industry devoted to estimating their long-term risks with respect to longevity, infl ation and cost. In part I of this two-part paper, we surveyed the nature and signifi cance of the problem, focusing upon the UK and the US private employer-sponsored plans. We suggested that the ' crisis ' was apparent, for those willing to look, a decade ago. Its signifi cance was papered over by the 1990s stock market bubble and high interest rates but has returned through what many analysts identify as a ' perfect storm ' . Having documented the nature and scope of the ' perfect storm ' , we now evaluate in part II the proffered solutions to the crisis, such as fi nancial engineering, government intervention and private sector negotiation. In the fi nal sections of the paper, we set out the principles that should guide the design of new kinds of employer-sponsored plans noting that if, as suggested by many experts, Western economies are entering an era of increasing labour shortage, private pensions will continue to have an important role in managing human capital.

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“…However, hardly any pension fund gives guarantees on future indexation. The requirement to be permanently fully funded, where liabilities are measured against the prevailing risk-free real yield curve, makes these pension plans extremely hard to handle (Bikker and Vlaar (2007)). Therefore, it is argued that the regulatory and supervisory regime should be adjusted to better reflect real obligations (see e.g.…”

Section: The Dutch Pension System: Pension Fund Policy Regulation Anmentioning

confidence: 99%

Market Valuation, Pension Fund Policy and Contribution Volatility

2008

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SummaryMarket valuation is becoming more and more popular, both in accounting and regulation, as well as in academic circles. For pension funds and their participants, the knowledge that marketvalued pension liabilities can indeed be transferred to a third party, if necessary, is a great virtue. Using a simulation model, this paper demonstrates the implicit costs and benefits of using market valuation for a typical Dutch pension fund, which offers a guaranteed average pay nominal pension with conditional indexation. The impact turns out to be fairly small, if fixed discount rates are still used for conditional rights. However, if market valuation is used for both unconditional and conditional rights, contribution volatility increases significantly. A remedy is to increase the duration of assets considerably. It is not clear, though, whether this option is available for large pension funds given the limited supply of long-term bonds.

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Conditional Indexation in Defined Benefit Pension Plans in the Netherlands

Cited by 37 publications

References 10 publications

Inefficiency of pension investment regulation: case of Russia

Inefficiency of pension investment regulation: case of Russia

The ‘crisis’ in defined benefit corporate pension liabilities Part II: Current solutions and future prospects

Market Valuation, Pension Fund Policy and Contribution Volatility

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