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Maximizing with‐profit pensions without guarantees

Maximizing with‐profit pensions without guarantees Pension providers are currently running into trouble mainly due to the ultra‐low interest rates and the guarantees associated to some pension benefits. In this paper, we aim to reduce the pension volatility and provide adequate pension levels—with no guarantees—through a new pension design. Under this design, the individual's premium is split into an individual and a collective account, both invested in funds. When the return from the individual fund exceeds a predefined corridor, a certain number of units is transferred to or from the collective account. In this way, the volatility of the individual fund is smoothed. By controlling the corridor width, we maximize the total accumulated capital at retirement. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Stochastic Models in Business and Industry Wiley

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Publisher
Wiley
Copyright
© 2022 John Wiley & Sons, Ltd.
ISSN
1524-1904
eISSN
1526-4025
DOI
10.1002/asmb.2661
Publisher site
See Article on Publisher Site

Abstract

Pension providers are currently running into trouble mainly due to the ultra‐low interest rates and the guarantees associated to some pension benefits. In this paper, we aim to reduce the pension volatility and provide adequate pension levels—with no guarantees—through a new pension design. Under this design, the individual's premium is split into an individual and a collective account, both invested in funds. When the return from the individual fund exceeds a predefined corridor, a certain number of units is transferred to or from the collective account. In this way, the volatility of the individual fund is smoothed. By controlling the corridor width, we maximize the total accumulated capital at retirement.

Journal

Applied Stochastic Models in Business and IndustryWiley

Published: Mar 1, 2022

Keywords: collective mechanism; optimization; pensions; redistribution index; volatility smoothing

References