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Pension Reform in The Netherlands: Attractive Options for other Countries?

Author

Listed:
  • Theo Nijman

    (Tilburg University
    Netspar)

Abstract

Rapid increases in life expectancy, the financial crisis and the lack of trust in financial institutions have raised worries about the sustainability of the pension system in many countries. This paper outlines the reforms that are likely to be implemented in The Netherlands. Pension income will be automatically linked to increases in life expectancy. Pension products that generate nominally guaranteed payments in Euros during retirement are perceived as unattractive for younger participants. Variable annuity contracts will be introduced that insure against the risk of outliving your assets but explicitly link the pension income to be received to the performance of financial markets. Investment risks on shorter horizons are less than for longer horizons, as suggested by habit formation. We discuss the liability driven investment (LDI) strategy that yields the required risk for the individual as well as the Dutch proposal to communicate investment risks in pension provision.

Suggested Citation

  • Theo Nijman, 2014. "Pension Reform in The Netherlands: Attractive Options for other Countries?," Bankers, Markets & Investors, ESKA Publishing, issue 128, pages 36-45, January-F.
    • Handle: RePEc:rbq:journl:i:128:p:36-45
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    References listed on IDEAS

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    1. Jeffrey R. Brown & Jeffrey R. Kling & Sendhil Mullainathan & Marian V. Wrobel, 2008. "Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle," American Economic Review, American Economic Association, vol. 98(2), pages 304-309, May.
    2. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-257, August.
    3. Carter, Lawrence R. & Lee, Ronald D., 1992. "Modeling and forecasting US sex differentials in mortality," International Journal of Forecasting, Elsevier, vol. 8(3), pages 393-411, November.
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    Cited by:

    1. An Chen & Motonobu Kanagawa & Fangyuan Zhang, 2021. "Intergenerational risk sharing in a Defined Contribution pension system: analysis with Bayesian optimization," Papers 2106.13644, arXiv.org, revised Mar 2023.
    2. Garcia Huitron, Manuel & Ponds, Eduard, 2016. "Participation and Choice in Funded Pension Plans : Guidance for the Netherlands from Worldwide Diversity," Other publications TiSEM 5351a381-f866-4566-82d8-9, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    Annuities; Life Cycle Investing;

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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