The effect of the baby boom generation on funding ratios: The Dutch case

A grey baby boom generation looms ahead. The retirement of the baby boom generation causes a distortion both in the demographic structure and in the stock market. The fraction of the population aged between 40 and 60 (the accumulation cohort) do have a positive effect on stock returns while the fraction of the population aged 65 and over (the decumulation cohort) has a negative effect. During 2012-2050, the baby boomers are leaving the accumulation phase and entering the decumulating phase. This development causes a substantial change in the size between the accumulation cohort and the decumulation cohort. Consequently, disequilibrium effects in the demand and supply of stocks might cause pressure on stock returns. Dutch pension funds will perceive substantial losses on their stock investments. Funding ratios may drop even more, and national trust could sweep away. Accurate risk management should prevent the effect of the baby boom generation on funding ratios.