A cohort-specific collar approach to retirement security

This thesis aims at developing an innovative approach towards retirement security with reference to the recommendations of the committee Goudswaard. The focus is on the relation between contribution, ambition and guarantees. Specifically, the implementedstrategy aims at realizing an ex-ante defined target benefit based on financial market insurance. The target benefit analyzed, is defined by a guaranteed level of pension income necessary to safeguard a minimum standard of living, while it allows for reaching an aspired level of pension income in case favorable economic scenarios realize. At retirement, the payoff corresponding to the target benefit is defined by a collar option contingent on the state of the economy. Assuming a complete market for equity risk, the payoff of the contingent claim is constructed by executing a cohort-specific anddynamic delta replication strategy. In addition, the proposed approach is compared to life cycle strategies more commonly executed in the pension industry. The results indicate that the collar approach potentially outperforms the evaluated life cycle strategies in terms of the aspired replacement rate that can be offered given a pessimistic replacement rate. Moreover, the collar approach may offer a larger probability of realizing an aspired benefit, given a predefined level of downside risk.