Personal Pensions with Risk Sharing, Affordable, Adequate and Stable Private Pensions in Europe

Research output: Working paperDiscussion paperOther research output

Abstract

Private pension provision faces the challenging task of providing stable income streams during retirement. The challenge has increased markedly in the last decades due to volatile financial markets, falling interest rates and the withdrawal of employers and external insurers as risk bearers of systematic financial and longevity risks. Partly because of these developments, policyholders desire pensions tailored to their individual needs. This paper proposes a new type of pension: the Personal Pension with Risk sharing (PPR). By unbundling and valuing the investment, (dis)saving, insurance and risk‐sharing functions of pensions, PPRs allow risk management and (dis)saving to be customized to the specific features of heterogeneous individuals. Moreover, unlike variable annuities, PPRs allow investment risks to be combined with longevity insurance without giving rise to high year‐on‐year volatility in consumption streams or opaque and rigid valuation and smoothing rules. The unbundling of functions in the PPR also deepens the internal markets for financial and insurance products while at the same time accommodating the diverse traditions of countries in terms of occupational pension provision. Finally, the PPR reconciles financial, fiscal and macroeconomic stability with growth by increasing the supply of long‐term risk‐bearing and illiquid capital, complementing public retirement provision, reducing the interest‐rate sensitivity of pensions and smoothing shocks.
Original languageEnglish
PublisherCEPR
Number of pages38
Publication statusPublished - Apr 2015

Publication series

NameCEPR Discussion Paper
No.10538

Fingerprint

Private pensions
Risk sharing
Pensions
Insurance
Retirement
Smoothing
Unbundling
Fiscal
Longevity risk
Variable annuities
Financial markets
Risk management
Income
Interest rates
Employers
Insurer
Internal market
Public capital
Occupational pension
Macroeconomic stability

Keywords

  • decumulation phase
  • defined benefit
  • defined contribution
  • longevity insurance
  • private pensions
  • risk management
  • risk sharing
  • variable annuities

Cite this

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abstract = "Private pension provision faces the challenging task of providing stable income streams during retirement. The challenge has increased markedly in the last decades due to volatile financial markets, falling interest rates and the withdrawal of employers and external insurers as risk bearers of systematic financial and longevity risks. Partly because of these developments, policyholders desire pensions tailored to their individual needs. This paper proposes a new type of pension: the Personal Pension with Risk sharing (PPR). By unbundling and valuing the investment, (dis)saving, insurance and risk‐sharing functions of pensions, PPRs allow risk management and (dis)saving to be customized to the specific features of heterogeneous individuals. Moreover, unlike variable annuities, PPRs allow investment risks to be combined with longevity insurance without giving rise to high year‐on‐year volatility in consumption streams or opaque and rigid valuation and smoothing rules. The unbundling of functions in the PPR also deepens the internal markets for financial and insurance products while at the same time accommodating the diverse traditions of countries in terms of occupational pension provision. Finally, the PPR reconciles financial, fiscal and macroeconomic stability with growth by increasing the supply of long‐term risk‐bearing and illiquid capital, complementing public retirement provision, reducing the interest‐rate sensitivity of pensions and smoothing shocks.",
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Personal Pensions with Risk Sharing, Affordable, Adequate and Stable Private Pensions in Europe. / Bovenberg, Lans; Nijman, Theo.

CEPR, 2015. (CEPR Discussion Paper; No. 10538).

Research output: Working paperDiscussion paperOther research output

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