scholarly journals Age Dependent Investing: Optimal Funding and Investment Strategies in Defined Contribution Pension Plans when Members are Rational Life Cycle Financial Planners

2011 ◽  
Author(s):  
David P. Blake ◽  
Douglas Wright ◽  
Yumeng Zhang
Keyword(s):  
Life Cycle ◽  
Pension Plans ◽  
Investment Strategies ◽  
Defined Contribution ◽  
Financial Planners ◽  
Age Dependent

Optimal Investment Strategies in Defined Contribution Pension Plans

2011 ◽  
pp. 234-279
Author(s):  
David Blake ◽  
Andrew Cairns ◽  
Kevin Dowd
Keyword(s):  
Optimal Investment ◽  
Pension Plans ◽  
Investment Strategies ◽  
Defined Contribution

Default investment strategies in a defined contribution pension system: a pension risk model application for the chilean case

2013 ◽  
Vol 12 (4) ◽  
pp. 379-414 ◽  
Author(s):  
SOLANGE BERSTEIN ◽  
OLGA FUENTES ◽  
FÉLIX VILLATORO
Keyword(s):  
Life Cycle ◽  
Risk Model ◽  
Pension System ◽  
Economic Behavior ◽  
Investment Strategies ◽  
Defined Contribution ◽  
Practical Applications ◽  
Dominated Strategies ◽  
Wide Range ◽  
Gain Loss

AbstractIn a defined contribution pension system, one of the main risks faced by members refers to the investment of funds. In this context, we discuss which is the most suitable risk measurement for the affiliates to the pension system. Different life-cycle investment strategies are evaluated under this measure for different types of workers. We point out the importance of designing well-suited default investment options in light of the economic behavior of members, characterized by low financial knowledge, inertia and myopia in decision-making. We calibrate a pension risk model for the Chilean economy, including measures of life-cycle income, human capital risk, investment and annuitization risks. Our results suggest that affiliates can gain (loss) around 0.85 percentage points in terms of average replacement rates in return for an increase (decrease) of 1 percentage point in risk, measured as standard deviation of replacement rates. Using a stochastic dominance analysis, we find that there are no dominated strategies when subsidies from the Solidarity Pillar are excluded. When the Solidarity Pillar is considered, the most appropriate investment strategies for affiliates that receive these subsidies are concentrated on the riskier funds. However, this also means that there could be increased pressure on Government spending in order to grant additional benefits to affiliates. Our model has a wide range of practical applications that go from informing affiliates about the degree of uncertainty associated to their expected replacement rate to a guide to evaluate how different investment strategies affect the expected values of affiliates' pensions and their associated risk.

scholarly journals An analysis of the Dutch-style pension plans proposed by UK policy-makers

2021 ◽  
pp. 1-21
Author(s):  
IQBAL OWADALLY ◽  
RAHIL RAM ◽  
LUCA REGIS
Keyword(s):  
Risk Sharing ◽  
Pension Plans ◽  
Retirement Savings ◽  
Investment Strategies ◽  
Defined Contribution ◽  
Replacement Rate ◽  
Policy Makers ◽  
Pension Schemes ◽  
Simulation Based ◽  
The Uk

Abstract Collective Defined Contribution (CDC) pension schemes are a variant of collective pension plans that are present in many countries and especially common in the Netherlands. CDC schemes are based on the pooled management of the retirement savings of all members, thereby incorporating inter-generational risk-sharing features. Employers are not subject to investment and longevity risks as these are transferred to plan members collectively. In this paper, we discuss policy related to the proposed introduction of CDC schemes to the UK. By means of a simulation-based study, we compare the performance of CDC schemes vis-à-vis typical Defined Contribution schemes under different investment strategies. We find that CDC schemes may provide retirees with a higher income replacement rate on average, together with less uncertainty.

scholarly journals Target-driven investing: Optimal investment strategies in defined contribution pension plans under loss aversion

2013 ◽  
Vol 37 (1) ◽  
pp. 195-209 ◽  
Author(s):  
David Blake ◽  
Douglas Wright ◽  
Yumeng Zhang
Keyword(s):  
Loss Aversion ◽  
Optimal Investment ◽  
Pension Plans ◽  
Investment Strategies ◽  
Defined Contribution

Welfare analysis of conditional indexation schemes from a two-reference-point perspective

2008 ◽  
Vol 8 (3) ◽  
pp. 321-350 ◽  
Author(s):  
RENXIANG DAI ◽  
J.M. SCHUMACHER
Keyword(s):  
Life Cycle ◽  
Continuous Time ◽  
Reference Point ◽  
Welfare Analysis ◽  
Pension Funds ◽  
Contingent Claim ◽  
Investment Strategies ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Middle Way

AbstractConditional indexation has recently attracted interest with pension funds that are looking for a middle way between defined benefit and defined contribution. In this paper, we analyze conditional indexation schemes from a life-cycle investment perspective. Welfare analysis is applied to investigate the performance of such schemes relative to alternative investment strategies such as fixed-mix policies. We carry out this analysis in the context of a broad family of utility functions, which takes into account the possible presence of two benchmark levels corresponding to a minimum guaranty and to full indexation, respectively. For the purpose of comparability, we construct a self-financing continuous-time implementation of the conditional indexation scheme. The implementation involves continual adjustment of the parameters of the contingent claim representing final payoff. Our findings indicate that, in situations where large weight is placed on the benchmark levels, conditional indexation is fairly close to being optimal.

scholarly journals Life-cycle patterns in the design and adoption of default funds in DC pension plans

2015 ◽  
Vol 15 (4) ◽  
pp. 429-454
Author(s):  
JOACHIM INKMANN ◽  
ZHEN SHI
Keyword(s):  
Life Cycle ◽  
Portfolio Choice ◽  
Choice Theory ◽  
Negative Relationship ◽  
Pension Plan ◽  
Pension Plans ◽  
Defined Contribution ◽  
Risky Assets ◽  
Plan Member ◽  
Life Cycle Patterns

AbstractWe argue that we should see a negative relationship between the share of risky assets in the default fund of a defined contribution (DC) pension plan and the average plan member age if trustees design the default fund in line with predictions from the life-cycle portfolio choice theory. Adoption of the default fund should be low in DC plans with high member age dispersion if default funds are indeed designed for the average plan member and members become aware of this. From analyzing a panel dataset of Australian DC pension plans, we obtain results that are consistent with both hypotheses.

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