Sensitivity of transition to assumptions and circumstances
When switching to the new pension contract, the design of the transition will affect the pension outcomes. Funds will have to perform concrete calculations and make use of (parameter) assumptions. The state of the economy (e.g. interest, UFR) will also influence the outcome of the actual transition.
In this research, we examine the question to what extent the transition variables that are considered relevant (immediate adjustment of pension, indexation potential, estimates of expected pension actives, net profit transition and compensation, chance of higher pensions than under the old contract, etc.), are sensitive to these assumptions and circumstances. Sensitivity for instance to:
-Risk premium shares
-Long-term developments in interest rates and inflation
-Other properties scenario set
-Modeling old contract (e.g. enough-is-enough)
-Premium level and variability
If possible, we will also indicate solutions in case certain assumptions or circumstances can be included in a robust manner. This also includes the possibility of pinpointing certain assumptions or circumstances during the transition.
Read the paper here.