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Palmnet: A pension asset and liability model for the Netherlands

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Author Info
M.C.J. van Rooij
A.H. Siegmann
P.J.G. Vlaar

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Abstract

This study presents a pension model geared to the typical pension contract in the Netherlands. It is based on a defined benefit/average earnings pension system. Nominal benefits are guaranteed and indexation is intended. The model provides a framework for analysing adjustments to such factors as the asset mix, retirement age, returns and the method of discounting, premium setting and indexation. The importance of uncertainty over interest rate movements and returns on shares is made explicit by means of stochastic and historical simulations. In this, PALMNET differs from existing, often deterministic pension models. The main findings are, first, a wage -indexed defined benefit pension is still affordable despite the current shortfall of wealth of pension funds. Second, fair value accounting considerably increases the volatility of pension premiums. Third, reducing risks by adjusting the asset mix towards more bonds is costly in terms of average premiums, but reduces the volatility. These conclusions are based on realistic to conservative assumptions regarding returns and risks.

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Publisher Info
Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 760.

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Length: 50 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:dnb:wormem:760

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Web page: http://www.dnb.nl/en/
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Related research
Keywords: Actuarial pension model; Monte Carlo simulation; historical simulation;

Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

Cited by:
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  1. Maarten C.J. van Rooij & Clemens J.M. Kool & Henriette M. Prast, 2004. "Risk-return preferences in the pension domain: are people able to choose?," Working Papers 05-04, Utrecht School of Economics. [Downloadable!]
    Other versions:
  2. Jacob A. Bikker & Peter J.G. Vlaar, 2006. "Conditional Indexation in Defined Benefit Pension Plans," DNB Working Papers 086, Netherlands Central Bank, Research Department. [Downloadable!]
  3. Maarten Rooij & Arjen Siegmann & Peter Vlaar, 2008. "Market Valuation, Pension Fund Policy and Contribution Volatility," De Economist, Springer, vol. 156(1), pages 73-93, March. [Downloadable!] (restricted)
    Other versions:
  4. Peter Vlaar, 2005. "Defined Benefit Pension Plans and Regulation," DNB Working Papers 063, Netherlands Central Bank, Research Department. [Downloadable!]
  5. Peter Vlaar, 2007. "Term Structure Modeling for Pension Funds:What to do in Practice?," DNB Working Papers 123, Netherlands Central Bank, Research Department. [Downloadable!]
  6. Allard Bruinshoofd & Sybille Grob, 2006. "Do changes in pension incentives affect retirement? A stated preferences approach to Dutch retirement consideration," DNB Working Papers 115, Netherlands Central Bank, Research Department. [Downloadable!]
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This page was last updated on 2009-11-11.

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