Individual pension risk preference elicitation and collective asset allocation with heterogeneity

Alserda, Gosse; Dellaert, Benedict G. C.; Swinkels, Laurens; Lecq, Fieke van der

doi:10.1016/j.jbankfin.2019.02.014

Cited by 30 publications

(21 citation statements)

References 48 publications

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“…We will use this minimum acceptable coverage rate as the point of discontinuity for a pension fund. When we instead use a power utility function 7 with the average risk aversion r = 1.92 (Alserda et al, 2016), we find a slightly higher average minimum acceptable coverage rate of 93.6%. Incorporating variation in horizon and risk aversion will again give a lower coverage rate, at which point nobody is willing to join the pension fund.…”

Section: Occurrence Of Discontinuity Eventsmentioning

confidence: 80%

“…Individual plans may have particular value by allowing for customizing the plan to individual preferences and time to retirement (i.e., lifecycles). The value of the individual plan (compared with the collective plan) will therefore be more attractive than in our model (see, for example, Alserda et al (2016)).…”

Section: Discussionmentioning

confidence: 95%

“…Finally, the first pillar and taxes can be relevant for discontinuity events. Pension fund members in countries that have high base pensions and progressive taxes will be less sensitive to differences in their risk-bearing (e.g., occupational) pension (Alserda et al, 2016). In addition, in some countries taxes and the base pension tend to be adjusted in line with purchasing power developments.…”

Section: Institutional Settingmentioning

confidence: 99%

“…For example, in the last year before discontinuity (N = 179), without further information, we can say that an individual will be indifferent toward the collective and individual plan if that person has a risk aversion level of 2.68 (above average (Alserda et al, 2016)). As the collective plan has higher volatility, this individual will prefer the individual plan if he or she has higher values of risk aversion.…”

Section: Impact Of Discontinuitymentioning

confidence: 99%

“…Real pension cuts that are smaller than the inflation can be considered as partial indexation of nominal pensions. 4 A common asset allocation in the Netherlands(Alserda et al, 2016) 5 Which follows fromDraper (2014); this return is neutral for the different generations in the sample. 6 In Section 5.4.2, we analyse the sensitivity of using the actual long-term interest rate…”

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confidence: 99%

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The Occurrence and Impact of Pension Fund Discontinuity

2017

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Collective pension arrangements tend to yield higher risk-adjusted pension benefits than individual plans due to intergenerational risk sharing and the lack of annuity conversion risk. These benefits pose the implicit assumption that the pension fund has an infinite horizon, while we observe that many pension funds discontinue. Using case studies of six discontinued pension funds, in combination with a simulation model, this paper analyses the occurrence and impact of pension fund discontinuity. Although discontinuity tends to increase the volatility of pension benefits, median benefits in most institutional settings increase after discontinuing the fund. We find that both the occurrence and impact of discontinuity depends strongly on the institutional setting of the pension fund. Stricter regulations, such as more conservative discount rates, increase the financial stability of the pension fund; however, they may reduce membership support through lower replacement rates. This poses a trade-off in the design of the pension system. * We thank Maurits Aben, Jurre de Haan and Adri van der Wurff for their useful comments and the Dutch pension funds association (Pensioenfederatie) for providing a list of discontinued pension funds

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Section: Occurrence Of Discontinuity Eventsmentioning

confidence: 80%

Section: Discussionmentioning

confidence: 95%

Section: Institutional Settingmentioning

confidence: 99%

Section: Impact Of Discontinuitymentioning

confidence: 99%

mentioning

confidence: 99%

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The Occurrence and Impact of Pension Fund Discontinuity

2017

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Stated Product Choices of Heterogeneous Agents are Largely Consistent with Standard Models

Dees,

Nijman,

van Soest

2023

De Economist

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In this paper we analyze how stated choices for the amount of risk in pension assets of Dutch participants in DC pension products vary with their characteristics. We find strong evidence that this variation is in line with standard portfolio choice models. Heterogeneity in age, risk aversion, loss aversion, non-pension financial wealth, the relative importance of DC pension wealth and educational attainment leads to differences in product choice that are largely in line with standard theory. This applies to investment choices in the accumulation phase as well as in the retirement phase.

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Digital customization of consumer investments in multiple funds: virtual integration improves risk–return decisions

Lim

Donkers

Dijl

et al. 2020

J. of the Acad. Mark. Sci.

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Digital technology in financial services is helping consumers gain wider access to investment funds, acquire these funds at lower costs, and customize their own investments. However, direct digital access also creates new challenges because consumers may make suboptimal investment decisions. We address the challenge that consumers often face complex investment decisions involving multiple funds. Normative optimal asset allocation theory prescribes that investors should simultaneously optimize risk-returns over their entire portfolio. We propose two behavioral effects (mental separation and correlation neglect) that prevent consumers from doing so and a new choice architecture of virtually integrating investment funds that can help overcome these effects. Results from three experiments, using general population samples, provide support for the predicted behavioral effects and the beneficial impact of virtual integration. We find that consumers' behavioral biases are not overcome by financial literacy, which further underlines the marketing relevance of this research.

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Individual pension risk preference elicitation and collective asset allocation with heterogeneity

Cited by 30 publications

References 48 publications

The Occurrence and Impact of Pension Fund Discontinuity

The Occurrence and Impact of Pension Fund Discontinuity

Stated Product Choices of Heterogeneous Agents are Largely Consistent with Standard Models

Digital customization of consumer investments in multiple funds: virtual integration improves risk–return decisions

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