Investing for Retirement with an Explicit Benchmark

Anne Balter, Lennard Beijering, Pascal Janssen, Frank de Jong, Agnes Joseph, Thijs Kamma, Antoon Pelsser

Research output: Book/ReportReportProfessional


Defined contribution (DC) pension schemes expose their participants to a significant
amount of uncertainty regarding their pension capital at retirement. Traditional lifecycle
investment strategies are based on maximizing the return of the investment
portfolio based on a utility function with constant relative risk-aversion (CRRA). We
explore the impact of using a different utility specification, where we assume that participants assess utility relative to a benchmark at retirement and that the utility function has a non-constant relative risk-aversion. Due to this alternative utility specification, we obtain investment strategies that explicitly attempt to attain the benchmark at retirement. As a result, the uncertainty of the pension capital relative to the benchmark is reduced significantly compared to traditional life-cycle investment strategies.
Original languageEnglish
Number of pages32
Publication statusPublished - 2020

Publication series

SeriesNetspar Design Paper

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