The Value and Risk of Defined Contribution Pension Schemes: International Evidence

Journal of Risk and Insurance, Forthcoming

Netspar Discussion Paper No. 09/2011-077

39 Pages Posted: 28 Sep 2011

See all articles by E. S. Cannon

E. S. Cannon

University of Bristol - Department of Economics

Ian Tonks

University of Bristol - Department of Finance and Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2011

Abstract

We use historical data on investment returns and labour income from sixteen countries to quantify the value and risk of defined contribution pension plans, building frequency distributions of pension fund and pension replacement ratios for each country. We show that pension risk is substantial, and find that pension fund ratios are lower and less variable than when the correlation between wage growth and investment returns is ignored: typically halving the median pension fund ratio. We also show that an all-equity fund is the dominant investment strategy across all countries, although sometimes a life-cycle strategy insures against downside risk.

Keywords: Risks, defined contribution pension schemes, pension replacement ratio

JEL Classification: E62, G14, H55

Suggested Citation

Cannon, Edmund Stuart and Tonks, Ian, The Value and Risk of Defined Contribution Pension Schemes: International Evidence (September 1, 2011). Journal of Risk and Insurance, Forthcoming, Netspar Discussion Paper No. 09/2011-077, Available at SSRN: https://ssrn.com/abstract=1934870

Edmund Stuart Cannon

University of Bristol - Department of Economics ( email )

Senate House
Tyndall Avenue
Bristol BS8 ITH
United Kingdom

Ian Tonks (Contact Author)

University of Bristol - Department of Finance and Accounting ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

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