Performance Measurement for Pension Funds

15 Pages Posted: 10 May 2006

Date Written: March 2005


Defined benefit pension plans experienced serious difficulties at the beginning of this new century. In our opinion, the stock market performance contributed only partly to this situation. More important is the poor choice of benchmarks used in risk and performance control. In this paper, we propose a more suitable benchmark and an attribution model for evaluating the investment performance of pension funds. The benchmark in this paper implies a clear choice for the reliability of the future pension claims. We emphasize the importance of making a distinction between nominal and real liabilities for pension funds. The investment strategy of a pension fund should be based on assets that matching the risk characteristics with its liabilities. We propose a portfolio of assets that is cash flow matched with the real liabilities and one matched with the nominal liabilities. In addition, we have a third portfolio, which is the portfolio of surplus assets that can be freely invested.

Keywords: Pension funds, asset liability management, performance measurement

JEL Classification: G23, G14, G11

Suggested Citation

Plantinga, Auke, Performance Measurement for Pension Funds (March 2005). Available at SSRN: or

Auke Plantinga (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen
+31 50 363 3685 (Phone)