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Pension Fund Regulation and Risk Management: Results from an ALM Optimisation Exercise

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  • Sandra Blome
  • Kai Fachinger
  • Dorothee Franzen
  • Gerhard Scheuenstuhl
  • Juan Yermo
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    Abstract

    This paper provides a stylised assessment of the impact of investment-relevant pension fund regulations and accounting rules on contribution and investment strategies within the context of an asset-liability model (ALM) specifically designed for this purpose. The analysis identifies a substantial impact of regulations which, in a simplified way, resemble those in place in Germany, Japan, the Netherlands, United Kingdom and the United States. The ALM model shows that regulations affect funding costs primarily through the choice of investment strategy. Strict funding regulations may force sponsors to make up funding shortfalls in bad economic times and lead them to invest more conservatively, which ultimately raises net funding costs. The paper also shows that fairvalue accounting standards (with immediate recognition of actuarial gains and losses) can contribute to higher funding levels than required by regulators. Réglementation des organismes de retraite et gestion des risques : Résultats d'un exercice d'optimisation fondé sur un modèle de GAP Nous présentons dans cette étude une évaluation simplifiée de l'impact qu'ont les règles comptables et les dispositions réglementaires applicables aux organismes de retraite en matière de placements sur les stratégies de cotisation et d'investissement, dans le cadre d'un modèle de gestion actif-passif (GAP) spécialement élaboré à cet effet. Nous mettons en évidence l'existence d'un impact sensible des dispositions réglementaires qui, pour simplifier, ressemblent à celles qui sont en vigueur en Allemagne, aux États-Unis, au Japon, aux Pays-Bas et au Royaume-Uni. Le modèle de GAP montre que l'influence exercée par les dispositions réglementaires sur le coût des capitaux passe essentiellement par le choix de la stratégie d'investissement. Une réglementation stricte en matière de financement peut contraindre les promoteurs de plans de retraite à combler les déficits de financement en période de conjoncture économique défavorable, et les amener à investir avec davantage de prudence, ce qui entraîne à terme une augmentation du coût net des capitaux. Nous montrons également dans cette étude que les normes de comptabilisation à la juste valeur (impliquant la prise en compte immédiate des gains et pertes actuariels) peuvent contribuer à des niveaux de financement plus élevés que ceux requis par les autorités de réglementation.

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    File URL: http://dx.doi.org/10.1787/171755452623
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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Working Papers on Insurance and Private Pensions with number 8.

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    Date of creation: May 2007
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    Handle: RePEc:oec:dafaab:8-en

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    Keywords: pension fund; defined benefit; asset liability management; discount rate; investment; actuarial method; valuation method; accounting; fair value; investissement; prestation définie; méthode d'évaluation; comptabilité; juste valeur; organisme de retraite; gestion actif-passif; taux d'actualisation; méthode actuarielle;

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    Cited by:
    1. Chen, An & Uzelac, Filip, 2014. "A risk-based premium: What does it mean for DB plan sponsors?," Insurance: Mathematics and Economics, Elsevier, vol. 54(C), pages 1-11.
    2. Johanna Scheller & Jacques Pézier, 2008. "Optimal Investment Strategies and Performance Sharing Rules for Pension Schemes with Minimum Guarantee," ICMA Centre Discussion Papers in Finance, Henley Business School, Reading University icma-dp2008-09, Henley Business School, Reading University, revised Oct 2009.

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