After Lunch Webinar: Peter Schotman – Can we manage the inflation risks for benefits better under the new DC schemes?

We review the various instruments a pension fund has for taking both unexpected and expected inflation, along with any potential changes, into account. The Future Pensions Act (WTP) provides other mechanisms for this than the old Financial Assessment Framework (FTK). We do this against the background of the steep rise in inflation for 2021−2023. First, we look at alternative definitions of the real assumed interest rate for applying an annual purchasing power allowance equal to the expected rate of inflation. Then we examine the investment policy for achieving both risk-free and excess returns. Finally, we study the potential added value to be gained by implementing a solidarity reserve. Our simulations show that the uncertainty in terms of the purchasing power of the benefits is great for a period of 5 years plus, regardless of the specifics of the pension contract or the chosen investment policy. This is in spite of the fact the most of the scenario sets currently in use incorporate little cumulative inflation risk over the long term.