Improving Pension Plan Design: Rethinking Risk-Sharing

“The added value of risk-sharing among generations in pension funds has been systematically overestimated……”.

INVESTMENTs & PENSIONS EUROPEOCTOBER 2, 2015

The Failure of Risk-Sharing across Generations

The quote above comes from an IPE article on a new study from the Dutch pensions think-tank Netspar, conducted by academics Bonenkamp, Broer, and Westerhout. Their paper is currently only available in Dutch, but will hopefully be soon translated into English.ⁱ

Readers of this publication know that we have long been skeptical about the value-adding prospects of intergenerational risk-sharing in workplace pension plans. The reasons have had the same basis as that of the Netspar researchers: while there may be theoretical conditions under which intergenerational risk-sharing is value-adding, those conditions are impossible to achieve in the real world of workplace pension plans.