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Real Pension Rights as a Control Mechanism for Pension Fund Solvency

27 Pages Posted: 1 Nov 2011  

Jacob Antoon Bikker

De Nederlandsche Bank; Utrecht University - Utrecht University School of Economics

Thijs Knaap

Algemene Pensioen Groep (APG)

Ward E. Romp

University of Amsterdam - Faculty of Economics and Business

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Date Written: August 1, 2011

Abstract

This paper models policy responses to changes in solvency by Dutch occupational pension funds using a unique panel dataset containing the balance sheets of all registered pension funds in the Netherlands over a period of 15 years (1993-2007). The model describes how nominal pension rights are expanded, by e.g. indexation or backservice, or, on the contrary, how the current pension accumulation is skimmed, e.g. by setting the pension premium over its actuarially fair price to build buffers. Policy responses are explained by the funding ratio and other pension fund characteristics such as pension funds' size and type, and participants' ages. We find that pension rights are expanded in line with the funding ratio, but that the pension funds’ response function exhibits two sharp and significant behavioural breaks, close to the minimum funding ratio of 105% and the target ratio of around 125%. These levels also play a pivotal role in current supervisory regulation. We further find that large pension funds and grey funds are relatively generous to participants.

Keywords: pension funds, pension rights, risk sharing instruments, indexation, funding ratio, solvability, regime shifts

JEL Classification: G23, G28

Suggested Citation

Bikker, Jacob Antoon and Knaap, Thijs and Romp, Ward E., Real Pension Rights as a Control Mechanism for Pension Fund Solvency (August 1, 2011). De Nederlandsche Bank Working Paper No. 311. Available at SSRN: https://ssrn.com/abstract=1951909 or http://dx.doi.org/10.2139/ssrn.1951909

Jacob Antoon Bikker (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Thijs Knaap

Algemene Pensioen Groep (APG) ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Ward E. Romp

University of Amsterdam - Faculty of Economics and Business ( email )

Roeterstraat 11
1018 WB
Amsterdam
Netherlands

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