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Funding regulations and risk sharing

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  • Colin Pugh
  • Juan Yermo
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    Abstract

    This paper provides a description of the risk sharing features of pension plan design in selected OECD and non-OECD countries and how they correspond with the funding rules applied to pension funds. In addition to leading to a better understanding of differences in funding rules across countries with developed pension fund systems, the study considers the trend towards risk-based regulation. While the document does not enter the debate over the application of riskbased quantitative funding requirements to pension funds (as under Basel II or Solvency II), it identifies the risk factors that should be evaluated and considered in a comprehensive risk-based regulatory approach, whether prescriptive or principles-based. The three main risk factors identified are the nature of risks and the guarantees offered under different plans designs, the extent to which benefits are conditional and can be adjusted, and the extent to which contributions may be raised to cover any funding gap. In addition, the strength of the guarantee or covenant from the sponsoring employer(s) and of insolvency guarantee arrangements should be carefully assessed when designing funding requirements.

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    File URL: http://dx.doi.org/10.1787/fmt-v2008-art7-en
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    Bibliographic Info

    Article provided by OECD Publishing in its journal OECD Journal: Financial Market Trends.

    Volume (Year): 2008 (2008)
    Issue (Month): 1 ()
    Pages: 163-196

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    Handle: RePEc:oec:dafkad:5kzllbzzwvzs

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    Cited by:
    1. Dirk Broeders & An Chen, 2008. "Pension regulation and the market value of pension liabilities - a contingent claims analysis using Parisian options," DNB Working Papers 183, Netherlands Central Bank, Research Department.
    2. Ponds, E.H.M. & Severinson, C. & Yermo, J., 2012. "Implicit debt in public sector plans: An international comparison," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5452874, Tilburg University.

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