Skip to main content
SpringerLink
Log in

Market Valuation, Pension Fund Policy and Contribution Volatility

  • Notes and Communications
  • Published:
De Economist Aims and scope Submit manuscript

Summary

Market valuation is becoming more and more popular, both in accounting and regulation, as well as in academic circles. For pension funds and their participants, the knowledge that market-valued pension liabilities can indeed be transferred to a third party, if necessary, is a great virtue. Using a simulation model, this paper demonstrates the implicit costs and benefits of using market valuation for a typical Dutch pension fund, which offers a guaranteed average pay nominal pension with conditional indexation. The impact turns out to be fairly small, if fixed discount rates are still used for conditional rights. However, if market valuation is used for both unconditional and conditional rights, contribution volatility increases significantly. A remedy is to increase the duration of assets considerably. It is not clear, though, whether this option is available for large pension funds given the limited supply of long-term bonds.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Ambachtsheer, K.P. (2005), ‘Winning the Pension Revolution: Why the Dutch are Leading the Way,’ The Ambachtsheer Letter, 234, July 2005.

  • Bikker J.A., Vlaar P.J.G. (2007) ‘Conditional Indexation in defined benefit pension plans in The Netherlands,’. Geneva papers on Risk and Insurance – Issues and Practice 32:494–515

    Article  Google Scholar 

  • Boender C.G.E. (1997) ‘A Hybrid Simulation/Optimisation Scenario Model for Asset/Liability Management,’. European Journal of Operational Research 99: 126–135

    Article  Google Scholar 

  • De Jong, F. (2008), ‘Pension Fund Investments and the Valuation of Liabilities Under Conditional Indexation,’ Insurance: Mathematics and Economics, forthcoming.

  • Van Els P.J.A., van den End W.A., van Rooij M.C.J. (2004) ‘Pensions and Public Opinion: A Survey Among Dutch Households,’. De Economist 152(1):101–116

    Article  Google Scholar 

  • Van Els P.J.A., van Rooij M.C.J., Schuit M.E.J. (2007) ‘Why Mandatory Retirement Saving?’. In: Steenbeek O.W., van der Lecq S.G. (eds) Costs and Benefits of Collective Pension Systems. Springer, Berlin, pp. 159–186

    Chapter  Google Scholar 

  • Van Ewijk C., Kuipers B., ter Rele H., van de Ven M., Westerhout E. (2000) Ageing in the Netherlands. CPB/Sdu Publishers, The Hague

    Google Scholar 

  • Van Ewijk, C. and C. Teulings (2007), ‘Efficiëntie en continuïteit in pensioenen: het FTK nader bezien, (Efficiency and Continuity in Pensions: A Closer Look at the FTK, in Dutch), Netspar NEA Papers, 3, http://www.netspar.nl.

  • Van Rooij M.C.J., Kool C.J.M., Prast H.M., (2007) ‘Risk-return Preferences in the Pension Domain: Are People Able to Choose?,’. Journal of Public Economics 91: 701–722

    Article  Google Scholar 

  • Van Rooij, M.C.J., A.H. Siegmann and P.J.G. Vlaar (2004), ‘Palmnet: A Pension Asset and Liability Model for The Netherlands,’ DNB Research Memorandum WO, 760, http://www.dnb.nl.

  • Vlaar, P.J.G. (2005), ‘Defined Benefit Pension Plans and Regulation,’ DNB Working Paper, 63, http://www.dnb.nl.

  • Vlaar, P.J.G. (2006), ‘Term Structure Modeling for Pension Funds: What to do in Practice?,’ DNB Working Paper, 123, http://www.dnb.nl.

  • Wilkie A.D. (1986) ‘A Stochastic Investment Model for Actuarial Use,’. Transactions of the Faculty of Actuaries 39:341–403

    Google Scholar 

  • Wilkie A.D. (1995) ‘More on a Stochastic Investment Model for Actuarial Use,’. British Actuarial Journal 1:777–964

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Economics & Research Division, De Nederlandsche Bank and Netspar, P.O. Box 98, 1000 AB, Amsterdam, The Netherlands

    Maarten Van Rooij

  2. Department of Finance, Free University of Amsterdam, De Boelelaan 1105, 1081 HV, Amsterdam, The Netherlands

    Arjen Siegmann

  3. Economics & Research Division, De Nederlandsche Bank and Netspar, P.O. Box 98, 1000 AB, Amsterdam, The Netherlands

    Peter Vlaar

Authors
  1. Maarten Van Rooij
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Arjen Siegmann
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Peter Vlaar
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Peter Vlaar.

Additional information

This paper benefited from discussions at seminars at DNB, PVK, ABP and CPB. We are grateful to Jan-Marc Berk, Dirk Broeders, and Peter van Els for useful suggestions and comments on a previous version of the paper. Views expressed are those of the authors and do not necessarily reflect official positions of De Nederlandsche Bank.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Van Rooij, M., Siegmann, A. & Vlaar, P. Market Valuation, Pension Fund Policy and Contribution Volatility. De Economist 156, 73–93 (2008). https://doi.org/10.1007/s10645-007-9083-9

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10645-007-9083-9

Keywords

JEL Classification

Search

Navigation