David R. Rijsbergen

Valuation of Liabilities in Hybrid Pension Plans

Contemporary pension plans are often hybrid pension plans, a mixture of defined benefit and defined contribution plans. In this article, we model a continuum of stylized hybrid pension plans in a run-off pension fund and value these pension liabilities taking account of both equity and interest rate risk. We achieve analytic valuation formulae and examine how the liability evolves over time. Comparative statistics are carried out to show the relevance of some key parameters in defining the hybrid pension plans, particularly the indicator of hybridity and the equity allocation in the pension funds investment policy.

What Drives Pension Indexation in Turbulent Times? An Empirical Examination of Dutch Pension Funds

This paper identifies the key factors driving indexation in turbulent economic times within defined benefit plans using a unique panel dataset of 166 Dutch pension funds from 2007 to 2010. Key drivers of indexation are the funding ratio, inflation and real wage growth. The type of pension fund and the interest rate exposure are also statistically significant, although the latter effect is nonlinear. The asset allocation has no significant effect on the level of provided indexation as this is already captured by the funding ratio. We also examine the relation between policy ladders and the actual level of provided indexation. This study finds that a policy ladder with an upper limit equal to a 100 percent real funding ratio is able to predict the actual level of indexation more accurately than a ladder with an upper limit based on a pension fund’s required funding ratio.

Managing the Quality of Financial Supervision

This chapter distinguishes seven global trends that will improve financial supervision by making it more forward-looking, supra institutional and integral. Financial supervisors need to continuously monitor and sharpen their effectiveness. The chapter analyzes the quality controls within the new supervisory approach of De Nederlandsche Bank. This framework of quality management consists of an organizational structure and culture aimed at continuous improvement and rapid transition from analysis to action as well as a focus on the ability to adequately measure supervisory performance.

A Life-Cycle Approach in the Dutch Occupational Pension System?

The recent global financial crisis reconfirms the importance of risk management in defined benefit pension systems. To enhance sustainability, new forms of integrating the risk profiles of assets and liabilities should be considered. Specifically, by reducing the risk profile of assets, by transferring more risk to the beneficiaries, or through a combination of the two. This article provides a stochastic analysis of different strategies that gradually switch from risky to risk-free investments over the life-cycle. While the study is set in a Dutch institutional context, its findings have broad application.

Does it pay to pay performance fees? Empirical evidence from Dutch pension funds

We analyze the relation between investment returns and performance fees for 218 Dutch occupational pension funds with an average total of 985 billion euro in assets under management from 2012 to 2015. Our dataset is free from self-reporting biases and includes total return, excess return and performance fees for six major asset classes. We find no statistical evidence that the returns of pension funds that pay performance fees to asset managers for active investing are significantly higher or lower than the returns of pension funds that do not pay performance fees. This is true for most asset classes and robust if we correct for risk and persistence in asset class returns. We also document that large and more specialized pension funds pay less performance fees for a given level of excess return in alternative asset classes such as hedge funds and private equity. This is possibly the result of better negotiation power due to their larger scale or higher level of expertise.

Measuring the Effects of Financial Sector Supervision

Financial supervisors are increasingly expected to be able to demonstrate the effectiveness of their actions. In practice, however, this proves challenging as it is difficult to prove the causality between supervisory actions and observed effects. In this paper we describe four lessons that help financial supervisors measure the effects of their actions. We also provide suggestions for the development of specific performance indicators to measure the effectiveness of financial supervision.