Income smoothing with equal adjustments

“Can income adjustments for all participants remain equal under the new Dutch pension scheme, even with smoothing of income adjustments over time and without any redistribution?”

In the proposed new Dutch pension system, period-by-period fluctuations in income adjustments can be large. In the current defined benefit system, such fluctuations are contained by smoothing income adjustments over time and the adjustments made are equal for all participants. In the new system, such smoothing can lead to unequal income adjustments of different participants within the same period. However,  pension funds could resolve this by using a smoothing method that ensures that all participants have an identical income adjustment within the same period.

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Key Takeaways for the Industry

  • In the new Dutch pension scheme, income adjustments can remain equal for all participants within one period, even when smoothing the adjustments over time.
  • The smoothing pattern is similar to current DB schemes and minimize the administrative burden.
  • The smooting period provides a more stable and uniform pension for the participants.

 

Want to know more?

Read the paper ‘Geheugenloos spreiden met gelijke aanpassingen’ by Sander Muns (Tilburg University)

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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