Measuring risk capacity

“Risk capacity is not just related to age”

Risk tolerance (willingness to task risks) and risk capacity (amount of financial risk individuals can bear) are key concepts for implementing adequate strategies in the new Dutch pension contract. We therefore measured age-related differences in risk capacity in a representative sample of the Dutch population to find out whether there are patterns or factors that pension funds should consider when making investment decisions.

Key Takeaways for the Industry

• Pension funds should take the risk intolerance as well as the risk capacity of their participants into account.
• The distribution of risk capacity may differ substiantially across pension funds. Further research into this is needed.