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The Role of Guarantees in Defined Contribution Pensions


  • Pablo Antolín


  • Stéphanie Payet


  • Edward Whitehouse


  • Juan Yermo



This paper examines the role of guarantees in DC pension plans, in particular minimum investment return guarantees during the accumulation phase. The main goal is to assess the cost and benefits of different return guarantees. The report uses a stochastic financial market model where guarantee claims are calculated as a financial derivative in a financial market framework (like e.g. the valuation of a put option). In this context, the report highlights the value of capital guarantees that protect the nominal value of contributions in DC pension plans. However, such guarantees can only be introduced relatively easily in the very specific context considered in this report. Allowing plan members vary contribution periods or investment strategies, or change providers, would raise major challenges for an effective and efficient implementation of return guarantees in a DC context. This would increase the complexity and cost of administering the guarantee. Le rôle de garanties dans les plans de retraite à cotisations définies Ce papier examine le rôle des garanties dans les plans de retraite à cotisations définies, en particulier les garanties de rendement minium sur l'investissement pendant la phase d'accumulation. Le rapport utilise un modèle de marché financier stochastique dans lequel les demandes de garantie sont calculées en tant que dérivés financiers dans un contexte de marché financier (comme par exemple la valorisation d'une option put). Dans ce contexte, le rapport souligne la valeur de la garantie du capital, qui protège la valeur nominale des cotisations aux plans de retraite à cotisations définies. Toutefois, ces garanties ne peuvent être introduites relativement facilement que dans le contexte spécifique de ce rapport. Si les adhérents des plans à cotisations définies sont autorisés à modifier les périodes de cotisation ou les stratégies d'investissement, ou à changer de prestataire, cela poserait des défis importants pour une implémentation efficace et efficiente des garanties sur les rendements. Cela augmenterait la complexité et le coût d'administration des garanties.

Suggested Citation

  • Pablo Antolín & Stéphanie Payet & Edward Whitehouse & Juan Yermo, 2011. "The Role of Guarantees in Defined Contribution Pensions," OECD Working Papers on Finance, Insurance and Private Pensions 11, OECD Publishing.
  • Handle: RePEc:oec:dafaad:11-en
    DOI: 10.1787/5kg52k5b0v9s-en

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    Cited by:

    1. Queisser, Monika & Whitehouse, Edward, 2005. "Pensions at a glance: public policies across OECD countries," MPRA Paper 10907, University Library of Munich, Germany.
    2. Tony Randle & Heinz P. Rudolph, 2014. "Pension Risk and Risk Based Supervision in Defined Contribution Pension Funds," World Bank Other Operational Studies 17791, The World Bank.
    3. Consiglio, Andrea & Tumminello, Michele & Zenios, Stavros A., 2015. "Designing and pricing guarantee options in defined contribution pension plans," Insurance: Mathematics and Economics, Elsevier, vol. 65(C), pages 267-279.

    More about this item


    accumulation phase; defined contribution; garanties; garanties de rendement minimums; guarantees; minimum return guarantees; pensions; pensions; phase d’accumulation; plans de retraite à cotisations définies; put options;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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