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Palmnet: A pension asset and liability model for the Netherlands


Author Info

  • M.C.J. van Rooij
  • A.H. Siegmann
  • P.J.G. Vlaar


This study presents a pension model geared to the typical pension contract in the Netherlands. It is based on a defined benefit/average earnings pension system. Nominal benefits are guaranteed and indexation is intended. The model provides a framework for analysing adjustments to such factors as the asset mix, retirement age, returns and the method of discounting, premium setting and indexation. The importance of uncertainty over interest rate movements and returns on shares is made explicit by means of stochastic and historical simulations. In this, PALMNET differs from existing, often deterministic pension models. The main findings are, first, a wage -indexed defined benefit pension is still affordable despite the current shortfall of wealth of pension funds. Second, fair value accounting considerably increases the volatility of pension premiums. Third, reducing risks by adjusting the asset mix towards more bonds is costly in terms of average premiums, but reduces the volatility. These conclusions are based on realistic to conservative assumptions regarding returns and risks.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 760.

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Length: 50 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:dnb:wormem:760

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Keywords: Actuarial pension model; Monte Carlo simulation; historical simulation;

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Cited by:
  1. Jacob A. Bikker & Peter J.G. Vlaar, 2006. "Conditional Indexation in Defined Benefit Pension Plans," DNB Working Papers 086, Netherlands Central Bank, Research Department.
  2. Peter Vlaar, 2007. "Term Structure Modeling for Pension Funds:What to do in Practice?," DNB Working Papers 123, Netherlands Central Bank, Research Department.
  3. Maarten van Rooij & Arjen Siegmann & Peter Vlaar, 2007. "Market Valuation, Pension Fund Policy and Contribution Volatility," DNB Working Papers 159, Netherlands Central Bank, Research Department.
  4. Streutker, Matthijs & van der Vlerk, Maarten & Klein Haneveld, Wim, 2007. "Implementation of new regulatory rules in a multistage ALM model for Dutch pension funds," Research Report 07005, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  5. M.C.J. van Rooij & C.J.M. Kool & H.M. Prast, 2005. "Risk-return preferences in the pension domain: are people able to choose?," Working Papers 05-04, Utrecht School of Economics.
  6. Allard Bruinshoofd & Sybille Grob, 2006. "Do changes in pension incentives affect retirement? A stated preferences approach to Dutch retirement consideration," DNB Working Papers 115, Netherlands Central Bank, Research Department.
  7. Peter Vlaar, 2005. "Defined Benefit Pension Plans and Regulation," DNB Working Papers 063, Netherlands Central Bank, Research Department.


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