Investment Regulations and Defined Contribution Pensions

OECD Working Papers on Insurance and Private Pensions No. 37

38 Pages Posted: 15 Sep 2009

See all articles by Pablo Antolin

Pablo Antolin

Organisation for Economic Cooperation and Development, OECD

Gerhard F. Scheuenstuhl

affiliation not provided to SSRN

Sandra Blome

affiliation not provided to SSRN

David Karim

affiliation not provided to SSRN

Stéphanie Payet

affiliation not provided to SSRN

Juan Yermo

Organization for Economic Co-Operation and Development (OECD)

Date Written: July 1, 2009

Abstract

This paper assesses the impact of different quantitative approaches to regulate investment risk on the retirement income stemming from defined contribution (DC) pension plans. It looks at how such regulations affect the spectrum of investment policies available and, through this channel, how they affect the retirement income that an individual may expect from a DC pension plan. The analysis shows that there is a trade-off between potential retirement income and protection from bad outcomes. Reducing the downside risk on retirement income from DC pension plans requires moving into relatively conservative investment policies where the share of assets allocated to bonds may be quite large. However, this comes at the cost of renouncing potentially higher replacement rates that are attainable but at a higher risk of unfavourable retirement income outcomes. Less risk adverse regulators and supervisors would aim at lower probability requirements as regard the downside risk, which will increase the range of investment policies available and thus the share of riskier assets.

Keywords: investment, regulations, defined contribution pension plans, retirement income, replacement

JEL Classification: D14, D91, E21, G11, G38, J14, J26

Suggested Citation

Antolin, Pablo and Scheuenstuhl, Gerhard F. and Blome, Sandra and Karim, David and Payet, Stéphanie and Yermo, Juan, Investment Regulations and Defined Contribution Pensions (July 1, 2009). OECD Working Papers on Insurance and Private Pensions No. 37. Available at SSRN: https://ssrn.com/abstract=1472994 or http://dx.doi.org/10.2139/ssrn.1472994

Pablo Antolin

Organisation for Economic Cooperation and Development, OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France
33-1-45.24.90.86 (Phone)
33-1-44.30.63.08 (Fax)

Gerhard F. Scheuenstuhl

affiliation not provided to SSRN

Sandra Blome

affiliation not provided to SSRN

David Karim

affiliation not provided to SSRN

Stéphanie Payet

affiliation not provided to SSRN

Juan Yermo (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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