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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
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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 

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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.

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