The Effect of the Assumed Interest Rate and Smoothing on Variable Annuities 2

In this paper we consider the risk-return tradeoff for variable annuities, focusing on defined contribution retirement facilities in the Dutch institutional setting. In particular, we study the effect of the assumed interest rate. We also consider in detail the consequences of the possibility to smooth financial market shocks over the remaining retirement period. Our analysis is based on an explicit distribution of initial pension wealth over the pension payments at various horizons. We briefly discuss the effects of sharing micro longevity risk.

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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