Design of the variable benefits and guarantees in personal pension

Since 2016, it has been possible to continue to invest in the payment phase of (improved) premium schemes. The variable benefit offers a higher (starting) benefit, but with more uncertainty. In the event of a collective allocation in a personal pension (Shell variant; current SER discussion), the annual income adjustments are the same for all participants. An alternative is to offer participants from a certain age a guaranteed pension or to provide participants with a choice between a pension in which risk is taken and a pension with a certain minimum guaranteed benefit. In this topicality project the advantages and disadvantages of recording are first of all of warranty elements.

Attention will also be paid to the conversion risk surrounding retirement. Before September 2016, there was a guideline from the AFM to reduce the risk of conversion to a lifetime guaranteed annuity shortly before retirement. Providers served the exposure to business via a life cycle reduce values and limit the interest rate risk due to the interest rate sensitivity of the investments same as the annuity to be purchased. From September 2016, legislation for DC pension schemes made variable annuities possible. We will examine how conversion risk in that setting can be controlled.

Finally, a comparison is made with expected regulations in Australia based on Comprehensive Income Products for Retirement (CIPRs). This product is based on a lifetime pension income that is expected to remain approximately the same annually. This fits in seamlessly with the Dutch legislation. However, unlike in the Dutch law, part of the assets becomes part of retirement set aside to e.g. receive a lifelong income from the age of 80. Before there is more room than in NL to take up extra pension income. This topicality project aims to find out what the arguments are whether or not to allow CIPRs under the Dutch law. Also the option for a guaranteed income from a certain age is discussed.

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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