Utility-Equivalence of Pension Security Mechanisms

28 Pages Posted: 3 Jan 2012 Last revised: 8 Jan 2014

See all articles by An Chen

An Chen

Ulm University - Institute of Insurance Science

Dirk Broeders

De Nederlandsche Bank; Maastricht University

Birgit Koos

University of Bonn - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 8, 2014

Abstract

Adequate funding of occupational pension plans is key to benefit security. Across countries different methods of securing funding exist: solvency requirements, a pension guarantee fund, and sponsor support. The key goal of this paper is to investigate the welfare implications to the beneficiary in a hybrid pension scheme. We show that the three security mechanisms can be made utility-equivalent by adjusting the pension contract specifications. The utility-equivalence approach could serve to strengthen the "holistic balance sheet" approach as advised by EIOPA. It enables regulators to compare various pension systems across Europe in a single framework from a utility perspective in stead of a valuation perspective.

Keywords: Pension plans, pension regulation, guarantee systems, power utility, certainty equivalents

JEL Classification: G11, G23

Suggested Citation

Chen, An and Broeders, Dirk and Koos, Birgit, Utility-Equivalence of Pension Security Mechanisms (January 8, 2014). Available at SSRN: https://ssrn.com/abstract=1978583 or http://dx.doi.org/10.2139/ssrn.1978583

An Chen (Contact Author)

Ulm University - Institute of Insurance Science ( email )

Ulm, 89081
Germany

HOME PAGE: http://www.uni-ulm.de/mawi/ivw/team

Dirk Broeders

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

HOME PAGE: http://www.dnb.nl/en/research/personal-pages/dirk-broeders/

Maastricht University ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.maastrichtuniversity.nl/about-um/faculties/school-business-and-economics

Birgit Koos

University of Bonn - Department of Economics ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
0049-228-739229 (Phone)
0049-228-735048 (Fax)

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