Stochastic Pension Funding: Proportional Control and Bilinear Processes

Bédard, Diane

doi:10.2143/ast.29.2.504615

Cited by 7 publications

(3 citation statements)

References 13 publications

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“…For example, a well-supported world bank study on China's pension system reform using the PRoSt approach was only able to cover the more-developed coastal regions because the required detailed data were not available for other regions (Sin 2005). the few models that are less demanding on data are relatively complicated in other respects and thus are not widely applied (e.g., Hamayon and legros 2001;becker and Paltsev 2001;bedard 1999;Cairns and Parker 1997;Haberman and wong 1997).…”

Section: Notesmentioning

confidence: 99%

Effects of Demographic and Retirement‐Age Policies on Future Pension Deficits, with an Application to China

Zeng

2011

Population & Development Rev

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A simple method is proposed for projecting future deficits in a defined benefit or defined contribution pension scheme. The annual pension deficit rate is expressed in terms of the elderly dependency ratio (determined by demographic factors), the average retirement age, and a few parameters describing the scheme. An illustrative application to China demonstrates that if the average age at retirement gradually increases from the current low level to age 65 for both men and women in 2050, the annual pension deficit rate would be greatly reduced or even eliminated under various plausible demographic regimes over this period. With all else equal, a transition to a two-child policy (assuming this would raise fertility) would also lower the deficit rate in comparison to keeping the current fertility policy unchanged, although the effect would be seen only after 2030. The effect of potentially faster mortality decline in raising future deficits is appreciable and starts earlier than the effects of fertility change. The proposed method may also be used to gauge the magnitudes and timing of impacts on future pension deficits of alternative assumptions regarding levels and age/sex composition of international migration.

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Section: Notesmentioning

confidence: 99%

Effects of Demographic and Retirement‐Age Policies on Future Pension Deficits, with an Application to China

Zeng

2011

Population & Development Rev

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“…To allow for growth in salaries and benefits, the Haberman (1992) model uses the deflated investment return (va) (7) where the rate of salary growth between now and retirement is assumed to increase at the same rate as benefits. To ensure stationarity, Haberman also assumes that e = p, and that there is no promotional scale.…”

Section: Transformation Of the Portfolio Returns To Contribution Ratementioning

confidence: 99%

Joined-Up Pensions Policy in the UK: An Asset-Liability Model for Simultaneously Determining the Asset Allocation and Contribution Rate

Board

Sutcliffe

2005

SSRN Journal

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ABSTRACT:The trustees of funded defined benefit pension schemes must make two vital and interrelated decisions -setting the asset allocation and the contribution rate. While these decisions are usually taken separately, it is argued that they are intimately related and should be taken jointly. The objective of funded pension schemes is taken to be the minimization of both the mean and the variance of the contribution rate, where the asset allocation decision is designed to achieve this objective. This is done by splitting the problem into two main steps. First, the Markowitz mean-variance model is generalised to include three types of pension scheme liabilities (actives, deferreds and pensioners) In a funded defined benefit scheme the employer and employees both make contributions to a fund which is invested to provide the pension, and any other benefits due under the scheme. The benefits received under such schemes are defined in advance, usually as a proportion of the employee's final salary. Many UK companies have recently chosen to close their defined benefit pension schemes. In the 5½ years up to February 2003, 63% of UK final salary schemes were closed to new entrants, while an additional 9% of schemes were also closed to future accruals (Association of Consulting Actuaries, 2003). The reasons given for closure include the introduction of Financial Reporting Standard 17, the substantial deficits on final salary schemes (caused by the fall in interest rates, the major stock market decline after the peak in December 1999, the extended contribution holidays and contribution reductions for employers, increases in benefits, the conversion of discretionary benefits into non-discretionary benefits, the use of pension schemes to finance early retirement on very favourable terms, and the tax limit on scheme surpluses); the effective move from limited price indexation to fully indexed pensions, with the fall in annual increases in RPI to below 5% since July 1991; the regulatory burden of administering these schemes; the increased cost due to rising life expectancy; the increased size of pension liabilities, relative to the size of the employer; the increase in stock market volatility; the risks that such schemes impose on employers (e.g. the risk that the fund will be insufficient to pay the pensions, the credit rating of the employer may be reduced because of the possibility of pension shortfalls); the abolition of tax relief on dividends from UK companies in 1997; the changes in actuarial technique leading to more volatile surpluses; the risk that new legislation or decisions by the law courts will increase the liabilities; the lower priority given to retaining staff; the opportunity to establish defined contribution schemes with a lower cost to the employer, and the much greater portability of defined contribution schemes.This paper develops an approach to the simultaneous analysis of two critical and interrelated decisions which must be made by any fund's trustees: the fund's asset allocation and its contributio...

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“…The aggregate investment return rate of the pension fund has been investigated on a model with independent and identically distributed (i.i.d.) returns (Dufresne, 1988(Dufresne, , 1989, an AR time-series model (Mandl and Mazurova, 1996;Haberman, 1994;Cairns and Parker, 1997), and an MA time-series model (Haberman, 1997;Bédard, 1999). The plausible term structure of AR and MA time series models was considered by Chang (2000).…”

Section: Introductionmentioning

confidence: 99%