Taskforce on interest rate and conversion risk in pension contracts

Purchasing an annuity: now or later? The role of interest rates
Juan Carlos Rodriguez (TiU), Thijs Markwat, Roderick Molenaar (both Robeco)

The authors of this paper investigate whether the option to delay annuitization in times of low interest rates has value for retirees. The retiree who chooses to wait bets on a fall in the annuity price brought about by a raise in the interest rates; the cost of such a bet is the loss of the mortality credit during the waiting period. They will show that waiting is never ex-ante profitable if annuities are fairly priced, because waiting is costly and buying a fairly-priced annuity is a zero-npv project. A retiree may choose to wait, however, if she believes her views are not priced in the term structure. For such a retiree, waiting is optimal if the expected increase in the interest rate is larger than the square of the hazard rate.

Interest rate models for pension and insurance supervision
Frank de Jong (TiU), Dirk Broeders (DNB), Peter Schotman (Maastricht Uni) and Bas Werker (TiU)
The term structure of interest rates plays an essential role in market-based supervisory rules for pension funds and insurance companies. The liabilities have to be valued using market interest rates, and the risk profile of fixed income investments and liabilities depends on the changes in the term structure. In the setting of contribution rates and in recovery plans, the expected return on fixed income investments and on liabilities plays a major role. Fixing these parameters requires model assumptions, but models may be wrong. In this design paper, we discuss the concept of model and parameter uncertainty and the implications for regulation.
How to avoid conversion risk in voluntary pensions?
Peter Vlaar (APG)
Locatie: Tilburg University Seminar Room K834 Warandelan 2 5037 AB Tilburg

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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