Performance Measurement of Pension Strategies: A Case Study of Danish Life Cycle Products

Scandinavian Actuarial Journal, Forthcoming

33 Pages Posted: 21 May 2010 Last revised: 20 Sep 2010

See all articles by Montserrat Guillen

Montserrat Guillen

Jens Perch Nielsen

City University London - Cass Business School

Ana Maria Perez-Marin

University of Barcelona

Kitt S. Petersen

Festina Lente

Date Written: August 3, 2010

Abstract

The Danish pension market of life cycle products have expanded considerably since its introduction in the beginning of the millennium. The market is maturing and pensioners have the choice between a wide area of different products. It is therefore about time that financial insurance technology is developed to guide the performance measurement of available products. In this paper we develop a simple first version of such a method and we investigate life cycle products recommended on the web of the four biggest commercial Danish pension companies on one day in February 2007. All considered products are outperformed by trivial benchmark products with constant stock proportion over time. Our approach is the following: for each life cycle product we first find a trivial benchmark product with the same long term risk and then we compare the long term return of the two equivalent products. We primarily consider value at risk and tail value at risk as risk measures, but we also include a study where the fair value of an interest guarantee is used as risk measure. We consider both long term mean returns and long term median returns. We hope that our new method will be regarded as a first step towards a scientifically based ranking of the quality of pension products.

Keywords: Retirement wealth, pension industry, pension performance measurement, saving schemes

JEL Classification: G23, J26

Suggested Citation

Guillen, Montserrat and Nielsen, Jens Perch and Perez-Marin, Ana Maria and Petersen, Kitt S., Performance Measurement of Pension Strategies: A Case Study of Danish Life Cycle Products (August 3, 2010). Scandinavian Actuarial Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1612931 or http://dx.doi.org/10.2139/ssrn.1612931

Jens Perch Nielsen (Contact Author)

City University London - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Ana Maria Perez-Marin

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

Kitt S. Petersen

Festina Lente

Toldbodgade 51 D
Copenhagen K, 1253
Denmark

No contact information is available for Montserrat Guillen

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