The added value of sharing risk with future generations
A Netspar working group recently studied the profitability of inter-generational risk sharing. Risks are shared with future generations in the sense that future participants are partially exposed to current financial benefits and pitfalls. This form of risk sharing can have a certain added economic value, in that risks can be distributed across a greater number of age cohorts so that each particular age cohort bears a smaller share of the overall risk. The disadvantage of risk sharing between current and future participants is that it can be associated with administrative risks and discontinuity risks.
This report takes a closer look at the estimates from various underlying studies of the trade-off between the prosperity benefits of inter-generational risk sharing and the attendant discontinuity risks.
In addition, the following underlying papers, referenced to in the report, are also made accessible (in alphabetical order):
- Bonenkamp, J., L. Frehen en J. de Haan (2016), “De toegevoegde waarde van intergenerationele risicodeling bezien vanuit het ALM perspectief”
- Bovenberg A.L. (2016), “Beleggen voor geboorte en risicodeling met de toekomst: een analytische benadering”
- Lever M. en T. Michielsen (2016a), “Risk sharing in individual and collective defined contribution pensions: modest benefits from collective risk sharing”
- Lever M. en T. Michielsen (2016b), “Welvaartswinst van pensioencontract met collectief vermogen”
- Loois, M. en D. Boeijen (2016), “Welvaartswinst met beperkt discontinuïteitsrisico: de meerwaarde van intergenerationele risicodeling en asymmetrische verdeelregels”
- Werker, B.J.M. (2016), “The value of IGR in a Merton model”