Program 4. Savings, Investments and Insurance

One of the primary functions of the pension system is dealing with risk. Every individual faces a host of risks throughout their lifetime, such as those related to income, investments, health, family, and so forth. The pension system—along with the government and social services—ensures that these risks are managed and distributed efficiently. Netspar has invested heavily these past few years in improving our knowledge of financial risk, but important research questions remain to be addressed.

Risk management is a key task of pension funds and insurers. One of the new questions in this domain involves the role of illiquid investments. Investment in a home is not liquid for people, and mortgage financing is also tied up for long periods of time. There is a growing interest among insurers and pension funds in these illiquid assets. That could benefit the housing market, while also helping the banks’ balance sheets. However, as insurers and pension funds grow their mortgage portfolios, new questions arise with regard to their asset management. This has been a major theme in the recent academic literature about illiquid investments. Applying this to the Dutch context could provide insight into the future demand for illiquid investments, the associated shortcomings, and the policy options for alleviating those shortcomings.

A second topic in this program concerns the future development of existing pension contracts. Variable annuities in individual contracts (“smart DC” plans) allow people to take risks even in the payout phase as a way of decreasing costs. And greater individual differentiation in collective contracts could contribute to a better distribution of risk across all life stages. Many countries offer people flexibility in terms of how their pension is paid out. This might take the form of receiving part of it as a lump sum or choosing between different forms of pension. Could offering greater flexibility provide better alignment with people’s individual situations and preferences? What lessons are there to be learned from the experiences of other countries? And could experiments in the Netherlands provide better insight into their applicability?

Greater pension flexibility could help in terms of better harmonizing cuts and payouts with individual circumstances. Under this line of thinking, pension contract design is directly aligned with such themes as freedom of choice, housing–healthcare–retirement, and employment. Providing flexibility in the savings stage, by allowing pension contributions to be substituted by home financing contributions, for instance, could help families make better use of their financial resources in “expensive times.” Meanwhile, flexibility in the payout phase could help people adapt their living situation to their needs in old age (e.g., installing a stair lift) or make provisions for costly long-term care. The main research question involves which decisions could be allowed a certain degree of freedom without leading to deleterious effects in terms of faulty individual decision-making, undesirable risk selection, and the undermining of solidarity. In other words, how can the pension system be realistically modified to allow greater customization and choice?

Any modification of the pension contract will inevitably meet with transition problems, especially where the uniform contribution system is concerned. By quantifying alternative scenarios, we can provide insight into the scope of the transition problems and any potential solutions or compensatory measures.

More information

Program coordinator: Anne Balter

Read more about ‘Savings, Investments and Insurance’ and our other research programs in the Netspar knowlegde agenda 2023-2027.

Publications, research projects and events

Click the links to find the publications, projects and events within the program ‘Savings, Investments and Insurance’.

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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