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What drives pension indexation in turbulent times? An empirical examination of Dutch pension funds

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  • Dirk Broeders
  • Paul Hilbers
  • David Rijsbergen

Abstract

This paper identifies the key factors driving indexation in turbulent economic times within defined benefit plans using a unique panel dataset of 166 Dutch pension funds from 2007 to 2010. Key drivers of indexation are the funding ratio, inflation and real wage growth. The type of pension fund and the interest rate exposure are also statistically significant, although the latter effect is nonlinear. The asset allocation has no significant effect on the level of provided indexation as this is already captured by the funding ratio. We also examine the relation between policy ladders and the actual level of provided indexation. This study finds that a policy ladder with an upper limit equal to a 100 percent real funding ratio is able to predict the actual level of indexation more accurately than a ladder with an upper limit based on a pension fund's required funding ratio.

Suggested Citation

  • Dirk Broeders & Paul Hilbers & David Rijsbergen, 2013. "What drives pension indexation in turbulent times? An empirical examination of Dutch pension funds," DNB Working Papers 368, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:368
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dirk Broeders & Arco van Oord & David Rijsbergen, 2015. "Scale economies in pension fund investments: A dissection of investment costs across asset classes," DNB Working Papers 474, Netherlands Central Bank, Research Department.
    2. Broeders, Dirk W.G.A. & van Oord, Arco & Rijsbergen, David R., 2016. "Scale economies in pension fund investments: A dissection of investment costs across asset classes," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 147-171.
    3. Leo de Haan, 2015. "Recovery measures of underfunded pension funds: higher contributions, no indexation, or pension cuts?," DNB Working Papers 485, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    Indexation; policy ladders; defined benefit plans;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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