Variable Annuities in the Dutch Pension System

In this paper we consider the risk-return trade-off for variable annuities in the retirement phase, with a special focus on theDutch institutional setting. In particular, we study the effect of the so-called Assumed Interest Rate. We also consider in detail the consequences of the possibility to smooth, in a certain sense, 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 discuss the effects of sharing (micro) longevity risk. Our focus is on variable annuities in an individual Defined Contribution setting.