Can Internal Swap Markets Enhance Welfare in Defined Contribution Plans?

7 Pages Posted: 6 Oct 2010

See all articles by Jiajia Cui

Jiajia Cui

Algemene Pensioen Groep (APG); University of Amsterdam

Eduard H.M. Ponds

Algemene Pensioen Groep (APG); Tilburg University - Department of Economics; Netspar; Tilburg University - Center for Economic Research (CentER)

Date Written: October 1, 2010

Abstract

There is a worldwide trend to substitute defined contribution pension plans for defined benefit plans, which are typically indexed to wage or price inflation. A problem with this development is that participants in defined contribution plans have limited access or no access at all to inflation-linked assets, especially wage inflation-linked claims. This article demonstrates that the creation of an internal market that swaps equity-related returns for wage inflation-linked income streams helps to overcome the market incompleteness regarding wage-linked securities. The result is an improvement in the welfare of both younger and older defined contribution plan members.

Keywords: Defined Contribution Plan, Internal Swap Market, Life-Cycle Theory, Pension Fund, Wage

Suggested Citation

Cui, Jiajia and Cui, Jiajia and Ponds, Eduard H.M., Can Internal Swap Markets Enhance Welfare in Defined Contribution Plans? (October 1, 2010). Rotman International Journal of Pension Management, Vol. 3, No. 2, 2010, Available at SSRN: https://ssrn.com/abstract=1687744

Jiajia Cui

Algemene Pensioen Groep (APG) ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Eduard H.M. Ponds (Contact Author)

Algemene Pensioen Groep (APG) ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Tilburg University - Department of Economics

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Center for Economic Research (CentER) ( email )

Tilburg

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