Communication and personal selection of pension saver’s financial risk

Abstract

The paper shows how to reform the platform of pension products so that pension savers, professional financial advisors, actuaries and investment experts intuitively understand the underlying financial risk of the optimal investment profile. It is also pointed out that an excellent optimal investment strategy can destroy the future expected utility of a pension saver if the financial communication is wrong. It is shown that a simple system with an upper and a lower bound, originally inspired by Merton [Harvard Business Review, 2014, 92 (7/8), 43-50], which can be executed easily using fintech, can replace complicated power utility optimization for the pension saver so that everyone can exactly understand the amount of financial risk taken. The paper focuses on investing money as a lump sum because being able to communicate the associated financial risk can serve as the first step towards communicating more complex pension saving structures.

Forecasting benchmarks of long-term stock returns via machine learning

“…With full benchmarking though, net-of-inflation, i.e., in real terms, the earnings-by-price beats the spread, with their combination performing best. This is an important observation as benchmarking fits well in building models net-of-inflation, as discussed in Donnelly et al (2018) and Gerrard et al (2018Gerrard et al ( , 2019, while at the same time expanding to double benchmarking endows earnings with predictive power. This is a crucial implication for pension research or other long-term saving strategies, where one should look at real value and implement double benchmarking including both spread and earnings.…”

“…sponsored project by the Institute and Faculty of Actuaries (IFoA) "Minimizing longevity and investment risk while optimizing future pension plans", Donnelly et al (2018) and Gerrard et al (2018Gerrard et al ( , 2019 suggest changing the classical benchmark, i.e., the risk free asset, to inflation.…”

Self-selection and risk sharing in a modern world of life-long annuities

“…In the above example, Emma revealed her risk appetite in much the same way as proposed for the lump sum case in Gerrard et al . (2017, 2018). By specifying the required guarantee length, Emma directly specifies her financial risk appetite.…”

“…Gerrard et al . (2017, 2018) provide an example of a risk-averse investor who could lose up to 80% of his savings, calculated in certainty equivalents, if mistaken for a riskier investor. This paper introduces an approach where the pension saver picks his own risk appetite in a simple way that also exactly back-calculates the pension saver’s optimal investment strategy.…”

Fuzzy Decision Making Method Based on Cocoso With Critic for Financial Risk Evaluation

“…Duan (2019) employed the deep neural networks for assessing and predicting the assessment of financial system. Gerrard et al (2019) developed a simple communication tool for enabling financial risk of the optimal investment profile. Goda and Tesfamariam (2019) presented the financial risk assessment of buildings in Victoria and Montreal.…”