A value-based approach to pension plan redesign in the Netherlands. Who will gain and who will lose?

The focus of this thesis is the intergenerational effects of the second pillar pension plan redesign in the Netherlands. We propose a tool that combines generational accounting and value-based ALM that adopts risk neutral valuation to assess the redistribution effects of different changes in the pension plan. Two groups of changes are considered: Firstly, the Dutch pension system development from traditional DB to collective DC with explicit contract isevaluated; secondly, shifting from nominal to the real framework using the adjusted real term structure, expected real returns and the combination method is analyzed. The results show that changes in discounting method can involve substantial redistribution among generations, often surpassing in magnitude the transfers implied by pension plan development.The results also indicate that by setting parameters of the pension plan redesign simultaneously an acceptable level of redistribution can be achieved. The tool that we present allows for quantitative evaluation of the value transfers and hence makes better informed decisions on pension redesign possible. The application of this approach is not limited to the second pension pillar only; it can as well be applied to other systems with collective features.