Abstract:Using recovery plan data of 213 underfunded Dutch pension funds for the years 2011, 2012 and 2013, discrete choice models are estimated describing pension funds' choices between three recovery measures: higher contributions, no indexation and pension cuts. The estimation results suggest, first, that pension cuts are more likely when the funding ratio is very low, there is little time left for recovery, the pension fund is not a corporate pension fund, and its participants are still relatively young. Second, th… Show more
“…Firstly, it generates income for individuals based on their previous economic activity (Wang, 2016;Androniceanu, 2017;Papik, 2017). Secondly, a pension can be seen as a type of insurance based on long-term contracts between savers and pension administrators (Hainaut, 2014;De Hann, 2016;Alda, 2017;Wiafe et al, 2017). The pension economy aggregates knowledge of microeconomics, particularly in decision-making and risk perception, based on individual preferences along with efforts to maximize usefulness.…”
Stocks and bonds represent the two most common assets in pension fund portfolios. For both pension fund participators as well as pension fund administrators it is necessary to examine the impact of stock and bond markets on the pension fund. This paper investigates the connection between stock, and, respectively bond market and pension funds. The relationship between the pension market and representative stock and bond market indexes was confronted. Research data based on pension statistics from the Organisation for Economic Cooperation and Development were included in our research. A stronger impact was shown of the bond market on pension fund performance. The paper is divided into 5 chapters. In the first chapter, we introduce theoretical approaches along with essential knowledge in terms of a deeper analysis of research problems. The second chapter focuses on a literature review, with the third detailing the methods and methodology of research. The fourth chapter focuses primarily on achieving and interpreting the results of research in the context of the set objectives. In the fifth chapter, the achieved results are aggregated in the form of particular recommendations formulated after studying the issue.
“…Firstly, it generates income for individuals based on their previous economic activity (Wang, 2016;Androniceanu, 2017;Papik, 2017). Secondly, a pension can be seen as a type of insurance based on long-term contracts between savers and pension administrators (Hainaut, 2014;De Hann, 2016;Alda, 2017;Wiafe et al, 2017). The pension economy aggregates knowledge of microeconomics, particularly in decision-making and risk perception, based on individual preferences along with efforts to maximize usefulness.…”
Stocks and bonds represent the two most common assets in pension fund portfolios. For both pension fund participators as well as pension fund administrators it is necessary to examine the impact of stock and bond markets on the pension fund. This paper investigates the connection between stock, and, respectively bond market and pension funds. The relationship between the pension market and representative stock and bond market indexes was confronted. Research data based on pension statistics from the Organisation for Economic Cooperation and Development were included in our research. A stronger impact was shown of the bond market on pension fund performance. The paper is divided into 5 chapters. In the first chapter, we introduce theoretical approaches along with essential knowledge in terms of a deeper analysis of research problems. The second chapter focuses on a literature review, with the third detailing the methods and methodology of research. The fourth chapter focuses primarily on achieving and interpreting the results of research in the context of the set objectives. In the fifth chapter, the achieved results are aggregated in the form of particular recommendations formulated after studying the issue.
“…Although we have no data on demographics, we do know the pension payments and the value of the liabilities per year. The ratio of pension payments to the value of the liabilities is an alternative measure for maturity (De Haan, 2018). If this ratio is high, a large part of the participants consists of retirees.…”
Defined benefit pension funds invest in illiquid asset classes for return, diversification or liability hedging reasons. So far, little is known about factors influencing how much they invest in illiquid assets. We conjecture that liquidity and capital requirements are pivotal in this decision. Short-term pension payments and margining on derivative contracts generate liquidity requirements, while regulations impose capital requirements. Consistent with our model we empirically find that these requirements create a hump-shaped impact of liability duration on the fraction of risky assets invested in illiquid assets. Further, we report that pension fund size, type, and funding ratio impact illiquid assets allocations.
“…The fourth quarter of 2010 was particularly bad for bond returns following the euro debt crisis. The impact of both crises urged the pension funds to take recovery measures to safeguard future pension benefits (e.g., De Haan, 2018). Figure 3.Average quarterly realised returns and returns from asset allocation policy, by asset class. Note : Weighted averages for 455 pension funds.…”
Using regulatory data free of self-reporting bias for 2007–16, we decompose investment returns of 455 Dutch pension funds according to their key investment decisions, i.e., asset allocation, market timing and security selection. In extension to existing papers, we also assess the impact of benchmark selection. Over time, asset allocation explains 39% of the variation of returns, whereas benchmark selection, timing and selection explain 11%, 9% and 16%, respectively. Across pension funds, asset allocation explains on average only 19% of the variation in pension fund returns. Benchmark selection dominates this by explaining 33% of cross-sectional returns. We relate the choice for a specific benchmark to investment, risk and style preferences.
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