Personal Pensions with Risk Sharing

Various Approaches

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper models a Personal Pension with Risk sharing (PPR). We derive several relationships between the parameters of a PPR. For instance, we show how the Assumed Interest Rate affects the median growth rate of retirement income. Policyholders can adopt (at least) two approaches to a PPR – the investment approach and the consumption approach. In the investment approach, policyholders specify in each period how much to save or to withdraw, and how to allocate their retirement assets across different investment options. By contrast, in the consumption approach, policyholders specify the entire consumption stream in retirement exogenously. We explore these two approaches in full detail and show how they differ from each other. In accordance with (internal) habit formation, we allow for excess smoothness and excess sensitivity in retirement income.
Original languageEnglish
Place of PublicationTilburg
PublisherNETSPAR
Number of pages31
Publication statusPublished - Dec 2016

Publication series

NameNetspar Industry Paper
VolumeDP 12/2016-038

Fingerprint

Risk sharing
Pensions
Retirement
Retirement income
Interest rates
Median
Assets
Habit formation
Excess sensitivity

Cite this

van Bilsen, S., & Bovenberg, L. (2016). Personal Pensions with Risk Sharing: Various Approaches . (Netspar Industry Paper; Vol. DP 12/2016-038). Tilburg: NETSPAR.
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van Bilsen, S & Bovenberg, L 2016 'Personal Pensions with Risk Sharing: Various Approaches ' Netspar Industry Paper, vol. DP 12/2016-038, NETSPAR, Tilburg.

Personal Pensions with Risk Sharing : Various Approaches . / van Bilsen, Servaas; Bovenberg, Lans.

Tilburg : NETSPAR, 2016. (Netspar Industry Paper; Vol. DP 12/2016-038).

Research output: Working paperDiscussion paperOther research output

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T1 - Personal Pensions with Risk Sharing

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AU - Bovenberg, Lans

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N2 - This paper models a Personal Pension with Risk sharing (PPR). We derive several relationships between the parameters of a PPR. For instance, we show how the Assumed Interest Rate affects the median growth rate of retirement income. Policyholders can adopt (at least) two approaches to a PPR – the investment approach and the consumption approach. In the investment approach, policyholders specify in each period how much to save or to withdraw, and how to allocate their retirement assets across different investment options. By contrast, in the consumption approach, policyholders specify the entire consumption stream in retirement exogenously. We explore these two approaches in full detail and show how they differ from each other. In accordance with (internal) habit formation, we allow for excess smoothness and excess sensitivity in retirement income.

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M3 - Discussion paper

T3 - Netspar Industry Paper

BT - Personal Pensions with Risk Sharing

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van Bilsen S, Bovenberg L. Personal Pensions with Risk Sharing: Various Approaches . Tilburg: NETSPAR. 2016 Dec. (Netspar Industry Paper).