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Real Pension Rights as a Control Mechanism for Pension Fund Solvency


  • Jakob Bikker
  • Thijs Knaap
  • Ward Romp


This paper models policy responses to changes in solvency by Dutch occupational pension funds using a unique panel dataset containing the balance sheets of all registered pension funds in the Netherlands over a period of 15 years (1993-2007). The model describes how nominal pension rights are expanded, by e.g. indexation or backservice, or, on the contrary, how the current pension accumulation is skimmed, e.g. by setting the pension premium over its actuarially fair price to build buffers. Policy responses are explained by the funding ratio and other pension fund characteristics such as pension funds' size and type, and participants' ages. We find that pension rights are expanded in line with the funding ratio, but that the pension funds' response function exhibits two sharp and significant behavioural breaks, close to the minimum funding ratio of 105% and the target ratio of around 125%. These levels also play a pivotal role in current supervisory regulation. We further find that large pension funds and grey funds are relatively generous to participants.

Suggested Citation

  • Jakob Bikker & Thijs Knaap & Ward Romp, 2011. "Real Pension Rights as a Control Mechanism for Pension Fund Solvency," DNB Working Papers 311, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:311

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    References listed on IDEAS

    1. Jacob A. Bikker & Dirk W. G. A. Broeders & David A. Hollanders & Eduard H. M. Ponds, 2012. "Pension Funds’ Asset Allocation and Participant Age: A Test of the Life-Cycle Model," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(3), pages 595-618, September.
    2. Jacob A. Bikker & Dirk W.G.A. Broeders & Dirk Jan de Dreu, 2010. "Stock Market Performance and Pension Fund Investment Policy: Rebalancing, Free Float, or Market Timing?," International Journal of Central Banking, International Journal of Central Banking, vol. 6(2), pages 53-79, June.
    3. Bovenberg, A.L. & Koijen, R.S.J. & Nijman, T.E. & Teulings, C.N., 2007. "Saving and investing over the life cycle and the role of collective pension funds," Other publications TiSEM 6eab1341-eda5-4f21-8c06-8, Tilburg University, School of Economics and Management.
    4. Jacob A. Bikker & Onno W. Steenbeek & Federico Torracchi, 2012. "The Impact of Scale, Complexity, and Service Quality on the Administrative Costs of Pension Funds: A Cross-Country Comparison," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(2), pages 477-514, June.
    5. J. de Dreu & J.A. Bikker, 2009. "Pension fund sophistication and investment policy," Working Papers 09-13, Utrecht School of Economics.
    6. Bikker, Jacob A. & De Dreu, Jan, 2009. "Operating costs of pension funds: the impact of scale, governance, and plan design," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(01), pages 63-89, January.
    7. J.A. Bikker & D.W.G.A Broeders & D. A. Hollanders & E. H.M. Ponds, 2009. "Pension funds’ asset allocation and participant age: a test of the life-cycle model," Working Papers 09-25, Utrecht School of Economics.
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    Cited by:

    1. Dirk Broeders & Paul Hilbers & David Rijsbergen & Ningli Shen, 2014. "What Drives Pension Indexation in Turbulent Times? An Empirical Examination of Dutch Pension Funds," De Economist, Springer, vol. 162(1), pages 41-70, March.

    More about this item


    pension funds; pension rights; risk sharing instruments; indexation; funding ratio; solvability; regime shifts;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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