Interview: “Investment Policy could be better aligned with what people want to achieve for themselves in terms of their Pensions.”
In pension and retirement plans, the investment and other risks are borne by participants. It is therefore in their best interests to have the investment policies designed to accommodate hard-to-predict yields, along with risks and uncertainties related to such variables as share prices and interest rates. Over the next few years, Netspar will be investing in research into the best investment policy in an uncertain market, one which also allows for such factors as individual responsibility and needs and customization.
Antoon Pelsser (MU) is the project leader of the theme project Design of Pension Contracts in Incomplete Markets and under Uncertainty. “We attempt in this project to shed more light on what possible system reforms might mean in terms of investment policy, among other things. A fund’s overall investment policy, taken together with the surcharges and discount rules, can be translated into an investment policy per participant and compared to alternatives. The raw calculations are being done by graduate students Julie Cratsborn and Thijs Kamma. Their results will then be further investigated. We expect to publish the first two Netspar papers for this project in the fall.”
Limits
“One variant we considered, for example, involved personal savings pots with a buffer. When yields are high, people could set aside greater sums for the bad times. When times are tough, that buffer would ensure that a guaranteed minimum could be paid out. It is important to make sure that what people “give up” in yields is proportional to what they get back in the bad times. That can be accomplished by setting the minimum or maximum limit in advance. We have already performed some raw calculations for what the ideal levels of those limits might be for achieving the best balance.”
Personal Ambitions
“Another conceivable option is the introduction of personal pension ambitions. At present, the pension funds sets the same goals for every participant. However, funds such as PGGM and Achmea are already conducting panel research into the desires of individual participants. We have assumed that people can decide for themselves what percentage of their final salary they will need after retirement depending on their personal situation and preferences. We then calculated what kind of investment policy would be needed to maximize the chances of achieving that goal – sort of a defined ambition, then, but linked to a personalized investment policy.”
Curious to Know More?
The initial results of the Design of Pension Contracts in Incomplete Markets and under Uncertainty were presented at a conference held July 5, 2018, with presentations from both academic and professional researchers. You can find the presentations and more information here (under the Program tab).
About Netspar Research Projects
Netspar supports innovative scientific research into all aspects of the social sciences associated with aging and retirement. Critical to creating this foundation for basic research are the three-year theme projects. Netspar funds these long-term research projects, in which scholars and industry researchers work together, for a sum of either €250,000 or €500,000. The projects produce both academic and industry-specific output (papers) and various events are subsequently organized to showcase the results.
More information about Netspar theme projects can be found here (English).
See, too, the infographic on our research projects and funding.
