Economic principles in pension design

Society is aging, leading to an increase in pension costs. Pension systems worldwide are being revised to enhance their sustainability. Hybrid pension schemes, such as the collective defined contribution (CDC) scheme, are gaining popularity due to a number of attractive features such as limited risks for sponsors, sharing of longevity risk, and lower administrative and investment costs. This thesis explores four essential economic principles for designing a sustainable pension scheme. These four principles are: fairness, efficiency, insurance, and accountability. Chapter 2 defines a general set of fair and efficient CDC schemes in the presence of equity market risk and interest rate risk. Chapter 3 analyzes macro longevity risk sharing among different age groups in a pension scheme as a risk management tool and demonstrates that workers can provide insurance against the macro-longevity risk of retirees. Chapter 4 investigates the accountability principle by examining a specific aspect of a pension fund’s policy, namely sustainable investment policy. This chapter contributes to the literature by providing an overview of disclosures about sustainable investing by a specific group of large institutional investors, namely Dutch pension funds.