Utility-equivalence of pension security mechanisms
AbstractAdequate funding of occupational pension plans is key to benefit security. Across countries different methods of securing funding exist: solvency requirements, a pension guarantee fund, and sponsor support. The key goal of this paper is to investigate the welfare implications to the beneficiary in a hybrid pension scheme. We show that the three security mechanisms can be made utility-equivalent by adjusting the pension contract specifications. The utility-equivalence approach could serve to strengthen the \holistic balance sheet" approach as advised by EIOPA. It enables regulators to compare various pension systems across Europe in a single framework from a utility perspective instead of a valuation perspective.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 414.
Date of creation: Jan 2014
Date of revision:
Pension plans; pension regulation; guarantee systems; power utility; certainty equivalents;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
This paper has been announced in the following NEP Reports:
- NEP-AGE-2014-02-08 (Economics of Ageing)
- NEP-ALL-2014-02-08 (All new papers)
- NEP-UPT-2014-02-08 (Utility Models & Prospect Theory)
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