This study examines which short-term and long-term regulations for occupational pension funds are best at maintaining a healthy financial situation for the fund and provides the best results for the participants in terms of pension benefits. In this study, two supervisory frameworks are discussed: the Dutch and Canadian framework. To compare the effects of the Dutch and Canadian framework on the financial situation of the fund and the magnitude of the benefits, a model has been developed in which a fictitious pension fund develops over time under either the Dutch regulatory framework, the Canadian regulatory framework, and unregulated framework. The outcomes within the unregulated and Dutch frameworks result in better results on the downside of the distributions than the Canadian framework, especially when employer discontinuity is taken into consideration. The unregulated framework results in slightly higher means for the accrued pension benefits, however, the results are similar to the Dutch system. Moreover, the Dutch framework informs the participants of possible lower benefits in an early stage, while the notification of lower benefits in the Canadian framework only comes after the sponsor has collapsed. Given this, it is recommended that the participants are notified immediately or at an early stage if the pension fund (or the sponsor) goes through bad economic times or low funding ratios. This could be done by providing annual information on the fund’s financial performance, the current funding ratio, or the height of the expected benefits for the participants. This way, the participants know what to expect and this will prevent undesirable surprises for the participants at pension date.
This study was co-funded by Netspar and the Global Risk Institute in Financial Services.