Intergenerational risk-sharing and changing demographics in a defined benefit pension scheme
We investigate the effects of changing demographics on intergenerational risk-sharing in a defined benefit pension fund. The pension system in the Netherlands is briefly discussed. We show that the optimal risk allocation rules spread out the risk over many years. A 100% allocation to risky assets can be justified using IRS and the long term horizon of the pension fund. We demonstrate that applying these parameters to a real economy needs further study. Changing demographics, in this research the Dutch demographics, distort the intergenerational fairness. We illustrate that the impact is severe, and repairing the effects leads to high costs.