By joining this group you will also get the opportunity to subscribe to its activity. Join this group
Economics of Pensions

Seminar Speaker

Aleksandar Andonov
Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?

Aleksandar Andonov is a PhD Candidate in Finance at Maastricht University, where he also teaches master courses on institutional investors and behavioral finance, and bachelor courses on investments. In his doctoral work, Aleksandar focuses on institutional investors, in particular pension funds and the money management industry, investigating the asset allocation and performance of these investors in public and private markets. His research ideas and findings have been presented at academic and industry conferences, and have been covered in popular financial media, such as the Financial Times. Aleksandar spent the 2012 spring semester at the International Center for Finance, Yale School of Management. In 2011 he was invited to participate in the 4th Nobel Laureate Meetings in Economics. Before starting his PhD, Aleksandar completed a Bachelor in Economics at Ss. Cyril and Methodius University, Macedonia, and a Master in Finance (cum laude) at Maastricht University.


We use an international pension fund database to compare the asset allocation and liability discount rates of public and non-public funds in the U.S., Canada and Europe. We document that U.S. public funds exploit the opaque incentives provided by their distinct regulatory environment and behave very differently from U.S. corporate funds and both public and non-public pension funds in Canada and Europe. In the past two decades, U.S. public funds uniquely increased their allocation to riskier investment strategies in order to maintain high discount rates and present lower liabilities, especially if their proportion of retired members increased more. In line with economic theory, all other groups of pension funds reduced their allocation to risky assets as they mature, and lowered discount rates as riskless interest rates declined. The arguably camouflaging and risky behavior of U.S. public pension plans seems driven by the conflict of interest between current and future stakeholders, and could result in significant costs to future workers and taxpayers.

Prof Nicholas Barr
Designing pensions: Lessons, pitfalls and some solutions

Nicholas Barr is Professor of Public Economics at the London School of Economics and the author of numerous books and articles including The Economics of the Welfare State (OUP, 5th edn, 2012), Reforming Pensions: Principles and Policy Choices (with Peter Diamond) (OUP, 2008) and Financing Higher Education: Answers from the UK (with Iain Crawford) (Routledge 2005).  

Alongside his academic work is wide-ranging involvement in policy, including two spells at the World Bank and as a Visiting Scholar at the Fiscal Affairs Department at the International Monetary Fund. 

He has also been active in policy debates, particularly on pension reform and higher education finance, advising governments in the post-communist countries, and in the UK, Australia, Chile, China, Hungary, New Zealand and South Africa.  He is a Trustee of HelpAge International and a member of Council of the Pensions Policy Institute.

A range of academic and policy writing can be found on


The opening part of the talk sets out the multiple objectives of pension systems (consumption smoothing, insurance, poverty relief and redistribution) and discusses core principles of analysis, in particular the need to take a holistic approach, the need to recognise that any pension reform has distributional effects, and the need to frame analysis in a second-best context, i.e. taking account of various forms of market failure.

The second part sets out lessons from economic theory, notably that imperfect information and non-rational behaviour are pervasive; output is central; different pension systems share risks differently; transition costs matter;  administrative costs matter; and implementation matters.  A central conclusion is that though there are sound principles of pension design, there is no single best pension system for all countries.

The third part sets out four policy directions which, though not definitive, recognise today’s labour markets and family structures and take account of the information and behavioural problems already noted:  non-contributory pensions mainly address poverty relief; redefining retirement addresses sustainability and has other benefits;  simply, cheaply-administered savings and annuities; and partially funded notional defined-contribution (NDC) pensions.

Prof Söhnke Bartram
Post-Retirement Benefit Plans, Leverage, and Real Investment

Söhnke M. Bartram is a Professor in the Department of Finance at Warwick Business School. Prior to joining Warwick University, he held faculty positions at Lancaster University and Maastricht University. He is also a Charter Member of Risk Who’s Who and a member of an international think tank for policy advice to the German government. His immediate research activities center around issues in international finance, corporate finance and financial markets, especially financial risk management. Dr. Bartram's work has been presented at conferences organized by the NBER, CEPR, the American Finance Association, and the Western Finance Association, published in the Journal of Finance, the Journal of Financial Economics and the Journal of Financial and Quantitative Analysis, and included in testimony before the U.S. Congress House Financial Services Committee. Various organizations and funding bodies have granted financial support for his research activities in the area of international and corporate finance, such as the U.S. Federal Deposit Insurance Corporation, the PricewaterhouseCoopers Global Competency Centre, the Leverhulme Trust, the Institute for Quantitative Investment Research, Netspar, and the International Centre for Research in Accounting. In 2003, the Federation of European Securities Exchanges awarded the Josseph de la Vega Prize for his work on derivatives market microstructure. In 2006, the Journal of Empirical Finance awarded its 3rd Biannual Best Paper Award for his work on foreign exchange rate exposure. In 2010, Financial Management awarded its 2nd Biannual Pearson/Prentice Hall Best Paper Award for his work on the use of derivatives by non-financial firms.

Dr. Bartram has been a Visiting Scholar with René M. Stulz, Everett D. Reese Chair of Banking and Monetary Economics, at the Charles A. Dice Center for Research of Financial Economics at the Fisher College of Business/Ohio State University (Columbus, OH), supported by the German National Merit Foundation, the German Academic Exchange Service, the German Federal Department of Commerce and Technology, and the Charles A. Dice Center for Research in Financial Economics. In 2005 and 2007, he was invited by Gregory W. Brown as a Visiting Scholar to the Department of Finance at the Kenan-Flagler Business School/University of North Carolina (Chapel Hill, NC). In 2006, he was a Visiting Scholar at the University of Texas at Austin (Austin, TX) (faculty sponsors: John Hund and Laura Starks) and a Visiting Researcher at the Kiel Institute for the World Economy. He has also been a Visiting Fellow at the Financial Markets Group at the London School of Economics in 2007, and has been awarded a Fulbright Scholarship to visit the UCLA Anderson School of Management. He worked for several years in quantitative investment research for State Street Global Advisors as Head of the London Advanced Research Center and is a consultant to various financial institutions and investment companies.


This paper shows that defined benefit pension and health care plans are important for firm leverage and real investment around the world. While consolidating off-balance sheet post-retirement plans typically increases effective leverage by 32%, firms reduce their level of regular debt by only 23 cents for every dollar of projected benefit obligation, yielding overall higher total leverage of plan sponsors by 24% compared to similar firms without post-retirement plan. Substitution rates between regular debt and post-retirement obligations are lower in countries with weaker employment laws and protection, more labor market freedom, pension guarantee funds, stricter rule of law as well as larger private bond market capitalization and private credit. Since post-retirement benefit obligations have more flexible terms than regular debt, they can be used to investigate the effect of financial flexibility on real investment. The results show that post-retirement benefit obligations are positively related to R&D, which generates growth options, and negatively related to capital expenditures, which exercises growth options. Compared to an otherwise similar firm without a post-retirement plan, the average plan sponsor has 5% less capital expenditures and 12% more research and development. The results are robust to other dimensions of financial policy, such as debt maturity, dividends, preferred stock, convertible debt, and leverage that also affect real investment.

Iain Clacher
Accounting for Pensions

Iain Clacher is a Lecturer in Accounting and Finance at Leeds University Business School.  His PhD research analysed pension accounting for defined benefit pension schemes.  Iain’s main area of research focuses on corporate pension schemes and he has a number of papers covering, pension accounting, pensions and corporate value and pension plan solvency and his research has attracted funding from The Actuarial Profession and the Rotman International Centre for Pensions Management.  He has also published in a number of other areas including corporate governance, sovereign wealth funds, financial accounting, precious metals and intangible assets.  Iain has also commented on a wide range of financial and economic issues in the media as well as being an invited speaker at a wide range of national and international conferences and events.  In addition to his academic work he has also acted as a consultant on a number of projects for clients including, the NAPF, the City of London Corporation and the Work Foundation. 


The International Accounting Standards Board (IASB) sets accounting standards within a conceptual framework and as part of this approach, there is a strong emphasis on the use of market prices. Current pension accounting, under IAS 19, applies a mixed accounting model. It can be viewed as a hybrid between financial economics and traditional actuarial methods as it applies discounted cash flow valuation via a market-determined discount rate to estimate pension liabilities, and market prices to value pension assets.
The application of this approach has been detrimental to the sustainability of the defined benefit pension scheme as it removes the interaction that occurs between pension assets and pension liabilities and asset/liability cash flows when both are valued using discounted cash flows. Consequently, this has led to greater volatility in Comprehensive Income (CI) and the recognition of substantial and often volatile pension deficits in the statement of financial position. At a macroeconomic level, mandating the use of AA rated bond yields to discount the present value of pension liabilities has resulted in schemes purchasing greater amounts of financial investments which better match the estimated present value of their pension accounting liabilities. Crucially, this move into financial assets feeds back into the long-term operations of the firm. If the assets held to meet the pension obligation are solely or predominantly bonds this will, in all likelihood, increase the cost of pension provision over the life of the scheme, as bonds have been consistently shown to generate lower long-term returns than equities. Consequently, any shortfall in pension plan funding that occurs over the long-term as a result of lower asset returns on bonds compared to equities will, all other things being equal, have to be met from corporate earnings.
To remedy these problems and improve pension accounting can be improved; we propose a consistent model for pension valuation. As such, pension liabilities should be valued as the discounted present value of future net asset/liability cash flows, thereby correctly allowing for the asset/liability interaction that occurs over the life of a pension scheme. In doing so, corporate accounts would recognise amounts that better reflect the long-term nature of a defined benefit pension obligation.



Niki Cleal
The Future of Public Sector Pensions

Niki Cleal is the Director of the Pensions Policy Institute (PPI) with overall responsibility for leading and managing the PPI.  The Pensions Policy Institute is an educational research charity which produces research and analysis to inform the policy debate on pensions and retirement income. During her time at the PPI, Niki has overseen the delivery of a large number of PPI research projects on state pension, private pension and public sector pension reforms as well as wider research projects on retirement income and assets. 

Niki is a member of the editorial board of Pensions: An International Journal and is also a member of the Financial Reporting Council’s Actuarial User Committee. Niki was a member of Lord Hutton’s Panel of Experts on his fundamental review of the public service pensions.

Niki joined the PPI from Halifax Bank of Scotland (HBoS) where she was Research Director, on secondment from HM Treasury where she worked for 6 years. An economist by training, during her time at the Treasury Niki led two major independent reviews – the Morris Review of the Actuarial Profession and the Lambert Review of business university collaboration.  At HBoS, Niki had responsibility for developing corporate position on pension policy, and leading the HBoS response to the Pensions Commission report.

Niki has a BA (Hons) Economics from Cambridge University and an MBA from INSEAD.


The Coalition Government has proposed a number of reforms to the public service pension schemes. The reforms include linking the pension benefits for public service workers to average salary rather than to final salary, linking the Normal Pension Age (NPA) to the State Pension Age (SPA) for the four largest schemes: NHS, Teachers, Local Government and the Civil Service and increasing the average level of pension contributions to be made by scheme members. Research undertaken by the Pensions Policy Institute (PPI) considers how the UK Government’s proposed reforms to the public service schemes will affect the value of the pension benefit offered to members of the four largest public service pension schemes.

In order to provide comparisons of the value of the benefits offered by alternative Defined Benefit pension schemes, such as a final salary scheme and a career average scheme, the Pensions Policy Institute calculates the Effective Employee Benefit Rate (EEBR) of different schemes for scheme members with different characteristics. The Effective Employee Benefit Rate provided by a particular pension scheme is calculated by translating the value of the pension benefit offered in the scheme into an equivalent percentage of salary that the scheme member would need to be given to compensate for the loss of the pension scheme.

The PPI’s analysis suggests that the Coalition Government’s proposed reforms to the NHS, Teachers, Local Government and Civil Service pension schemes will reduce the average value of the benefit offered across all scheme members by more than a third, compared to the value of the schemes before the Coalition Government’s proposed reforms. Across the four largest public service pension schemes the value of the schemes reduces, on average, from 23% of a scheme member’s salary before the reforms to 15% of a scheme member’s salary after the Coalition Government’s proposed reforms. Some scheme members will be affected to a greater extent and others to a lesser extent by the reforms. Precisely how individual scheme members are affected by the reforms will depend on the scheme member’s age when the reforms are introduced, their earnings profile over the course of their career and how long they stay in the scheme.

Mr William Fornia
A Better Bang for the Buck – The Economic Efficiencies of Defined Benefit Plans

William B. (Flick) Fornia is founder and President of Pension Trustee Advisors. PTA provides consulting services on public pensions with emphasis on pension advice.
Flick has expertise in all retirement-related areas, including financing, risk, plan design, bond analysis, asset-liability studies, retiree healthcare and legislative testimony.
He has performed consulting services for 22 statewide retirement systems in Alaska, California, Colorado, Louisiana, Missouri, New Mexico, North Dakota, Oklahoma, Puerto Rico, Utah, Vermont, Wyoming and others. Other clients have included the US Department of State, Cities of Baltimore, Oakland, New York and Philadelphia, IBM, US WEST and Ford Motor Company. He has consulted on public pension matters involving seven of the ten largest US Cities, and has testified to numerous Legislatures, City Councils, and in Federal Court.
Prior to forming PTA in 2010, Flick had more than 30 years of consulting and actuarial experience, primarily in the areas of retiree pension and healthcare benefits. Flick led Aon Consulting’s public sector pension actuarial consulting practice as Senior Vice President from 2006 to 2010. Previously, he managed the Denver Retirement Practice of Buck Consultants and served nationally as a Senior Consultant for Gabriel, Roeder, Smith & Co. His career includes serving as corporate actuary for The Boeing Company and as consultant for numerous multinational corporations in Brazil and Argentina during his ten years at Towers Perrin.


In the current environment, some have proposed replacing traditional defined benefit (DB) pensions with 401(k)-type defined contribution (DC) retirement savings plans in an effort to save money. But decision makers would be wise to look before they leap.
DB plans possess “built-in” savings, which make them efficient retirement income vehicles, capable of delivering retirement benefits at a low cost to the employer and employee. These savings derive from three principal sources.
First, DB plans better manage longevity risk, or the chance of running out of money in retirement, by pooling the longevity risks of large numbers of individuals.
Second, because DB plans, unlike the individuals in them, do not age, they are able to take advantage of the enhanced investment returns that come from a balanced portfolio.
Third, DB plans, which are professionally managed, achieve greater investment returns as compared with DC plans that are made up of individual accounts.
Because of these three factors, our analysis indicates that the cost to deliver the same level of retirement income to a group is 46% lower in a DB plan than it is in a DC plan. This is an important factor for policymakers to consider.

Prof Teresa Ghilarducci
Accounting for the Macroeconomic Effects of Pensions, 401(k)s and Social Insurance

Teresa Ghilarducci is a labor economist and nationally-recognized expert in retirement security.

Teresa holds the Bernard L. and Irene Schwartz Chair in economic policy analysis and directs the Schwartz Center for Economic Policy Analysis (SCEPA) that focuses on economic policy research and outreach.

Ghilarducci joined The New School in 2008 after 25 years as a professor of economics at the University of Notre Dame. Her most recent book - When I’m Sixty Four: The Plot Against Pensions and the Plan to Save Them – investigates the loss of pensions on older Americans and proposes a comprehensive system of reform. Her previous books include Labor's Capital: The Economics and Politics of Employer Pensions, winner of an Association of American Publishers award in 1992, and Portable Pension Plans for Casual Labor Markets, published in 1995.


What are the macro-economic effects of pension policy? Does regulation of funding levels have a procyclical, destabilising effect on the economy, with additional, deflationary, contributions needed when schemes are unfunded in recessionary times?
We know that the structure of commercial, individually-directed defined contribution plans destabilize the economy because of the effect on aggregate demand and labor supply. DC plans are automatic destabilizers. Workers spend more when the account balances are expanding and save more when they lose their job or do not retire when the unemployment rate increases. However because of certain current regulations and practices DB pensions also have destabilizing effects because the annual required contributions increase in recessions. Pension accounting principles that cause employers (private and public), workers, and governments social insurance plans to increase pension reserves when times are good and borrow stabilize unstable market economics.

This paper answers questions concerning how accounting principles for DB and DC pensions, in both public and private sectors affect contributions, investment policies, and retiree and worker consumption. Assumptions of perfectly efficient markets in the valuation of assets and liabilities affect investment policies and destabilization.

Michael Johnson

Michael is a Research Fellow at the Centre for Policy Studies (CPS) and a Director of Embrace Success Ltd, specialising in the field of coaching and cultural change.  He trained with JP Morgan in New York and, after 21 years in investment banking, joined Towers Watson, the actuarial consultants.  Subsequently he was responsible for the running of David Cameron’s Economic Competitiveness Policy Group, working with Oliver Letwin, John Redwood and Lord Wolfson (CEO of Next plc).  The Group examined some of the main barriers to prosperity, focussing on deregulation, energy, public sector effectiveness, retirement savings and pensions, skills, STEM and transport.

Michael is the author of Don’t let this crisis go to waste (CPS, 2009), in which he proposes a radically simplified State Pension structure and amendments to the (flawed) NEST.  This was followed by Simplification is the key (CPS, June 2010), backed by Conservative and Labour peers, which highlights the ludicrous complexity of our pensions and savings arena and promotes the idea of unifying the ISA and pension worlds.  The paper goes on to visualise the long term savings Holy Grail, namely a single, unified tax regime for ISAs and all pensions products.

Subsequently Michael focused on the challenge of reforming public sector pensions, with Self-sufficiency is the key (CPS, February 2011), again backed by Conservative and Labour peers.  The paper concludes that a pure DC framework is inevitable, after an interim period of (politically palatable) CARE-based DB.  This was followed by The £100 billion negotiations, (CPS, September 2011), which describes how the Government is being out-manoeuvred by the unions in the public sector pensions negotiations.  It goes on to propose a way forward.

Subsequently he wrote Pensions: bring back the 10p rebate, and goodbye higher rate relief (CPS, March 2012), and then Put the saver first; catalysing a savings culture (CPS, July 2012), again backed by Conservative and Labour peers.  This paper makes 104 proposals, predominately concerned with how the industry itself could put the saver at the centre of everything it does.  His most recent paper is Costly and ineffective: why pension tax reliefs should be reformed (CPS, November 2012).

In late-2012 he was invited to give oral evidence to both the DWP Select Committee inquiry into Governance and Best Practice in Workplace Pension Provision, and the House of Lords Select Committee on Public Service and Demographic Change.



Con Keating
Keep Your Lid On - A Financial Analyst’s View of the Cost and Valuation of DB Pension Provision

In a career spanning more than forty years, Con has worked as an infrastructure project financier, corporate advisor, pension fund investment manager and research analyst in Europe, Asia and the United States. He has served on the boards of a number of educational and charitable foundations and as a trustee of several pension schemes. He is currently an advisor to a number of official institutions, including the OECD and ASEAN+3.


In this paper we introduce the Internal Growth Rate (IGR) of a pension system and argue that discounting at the IGR meets reporting objectives. Moreover, if discounting at a single rate is used as a valuation mechanism for the sake of clarity and comparability, then the IGR is the only rate satisfying these requirements. The many alternatives in use lead to over or under estimates, bias and volatility. The main reason for this is that they are exogenous to the system and do not reflect scheme arrangements and dynamics. The IGR avoids these by considering an element of the system which is overlooked in current arrangements, contributions. These are the inputs to the process which delivers the output, pensions. The IGR enables accurate and consistent evaluation of the state of the pension system when applied to the income and expense projections.
The added benefits of evaluation at the IGR include stability of reporting and elimination of spurious external effects in pension fund reporting. In this way it will be possible to avoid unnecessary and costly interventions in scheme management, which are purely aimed at improving reporting under current (misleading) standards rather than on improving fund dynamics.
The estimate of fund IGR may incorporate the entire fund design, including funding arrangements with sponsors and the use of insurance and guarantees. This is not possible using many currently-used methods, for example, a market value based approach. The IGR can be used to assess and compare pension system performance, and to measure the impact of management interventions such as liability driven investment and closure of schemes to new participants. It also sheds new light on the debate on the affordability of DB schemes.
The valuation methods for pension funds have been highly contentious. The IGR and proposed method inform several aspects of those debates.

Paul Klumpes
Financial sustainability of US public pensions (with Michael Moore)

Paul Klumpes is professor of Accounting at EDHEC Business School, Roubaix, France. Previously, he was Professor of Accounting at Imperial College London and the Swiss RE: Professor of Risk Accounting at Nottingham University Business School. He holds an LLB(hons) from Open University, a BCom(hons), MCom(hons) and PhD in Accounting from the Unversity of New South Wales. He is also an Australian CPA and an Honorary Fellow of the Institute of Actuaries. He has numerous publications and his research interests cover the inter-relationship of public policy and reporting, regulation, financial management and control of financial services.


The financial sustainability of US public pension plans is increasingly under scrutiny. We propose a cash accounting based system of accountability for these organisations which in my view provides profound new insights into the full financial dimensions of these plans which are not revealed by accounting based metrics. We develop and test a behavioural structural model that tests the interrelation between generational imbalance of these plans with wage levels; contributions; asset returns and benefits on a sample of US public sector pension plans. Our results support the hypothesis that financially unsustainable plans display behavioural persistence in funding; as opposed to regression to the mean. Our analysis supports the conjecture that many US public pension plans are unsustainable.

Dennis Leech

Dennis Leech is a Professor of Economics at Warwick university and a research associate of the Centre for Competitive Advantage in the Global Economy. He is an applied quantitative economist who has published research on the economics of corporate governance, shareholder ownership and control of companies and in other areas. He has recently called for the regulation of company pension schemes to be reformed because the present arrangements are not only failing to protect pensions in circumstances of financial crisis but also worsening the recession and damaging the prospects for economic growth.

Gregg McClymont

Gregg has been Labour MP for Cumbernauld, Kilsyth and Kirkintilloch East since 2010 and Shadow Pensions Minister since Oct 2011. Before being elected as an MP Gregg taught history at St Hugh's College, Oxford. Gregg was educated at the universities of Glasgow, Pennsylvania, and Oxford.

Marek Naczyk
Open Pension Funds in Crisis: Assessing the Merits of Poland’s Multi-Pillar System

Marek Naczyk is a Postdoctoral Research Fellow at Oxford University’s Department of Social Policy and Intervention since January 2013. His research interests are in the political economy of welfare state change, of labour market transformations and of corporate governance reform. He is a graduate of Sciences Po Paris and received his DPhil in politics from the University of Oxford. His current research projects focus on the role of the financial industry, employers’ associations and trade unions in the privatization of pensions and on the links between pension privatization and corporate governance reform. While his thesis studied the development of private pension funds in Britain, France and Poland, he has also done research on the politics of pension reform in Belgium, Germany, Hungary and the Czech Republic.


At the end of the 1990s, Poland became one of the first European countries to enact a “paradigmatic pension reform”, which consisted in a relatively radical retrenchment of public pay-as-you-go pensions and their partial replacement with mandatory retirement savings plans managed by so-called “open pension funds”. However, in the wake of the global financial crisis, Polish authorities decided substantially to cut contributions diverted towards the open pension funds and to transfer them back towards the public pay-as-you-go scheme. This paper will tell the political-economic history of the Polish multi-pillar system. The first part will show why pension privatization initially enjoyed widespread support from – and was largely promoted by – interest groups representing the financial industry, employers and workers. The second part will trace the developments that occurred in the decade following the reform and explain why politicians decided to scale back the privatization of the pension system. Apart from outlining the main points of the paper, the presentation will provide a general assessment of the merits of the Polish system of open pension funds. In particular, it will focus on issues such as the development of the domestic capital market, the effects of the system on the rise of public debt, the open pension funds’ fee structure and the regulation of the pay-out phase.

David Pitt-Watson
Executive Fellow, London Business School. Founder and former Chair of Hermes - Equity Ownership Service

David Pitt-Watson was CEO and Chair of all Hermes shareholder engagement businesses; the largest of any investment manager in the world.

Over the past five years he has led the Tomorrow’s Investor programme at the Royal Society for Arts, which has lead the debate over pension reform. He has written and lectured widely on issues of corporate
governance, capital market integrity and regulation and has advised the UK government over a number of years on its initiatives to improve the performance and integrity of capital markets.

A graduate of Oxford and Stanford Universities, David is Chair of the UN Environment Programme’s  Finance Initiative,
and is a trustee and Treasurer of Oxfam.

Prof Eduard Ponds
Optimal degree of funding of public sector pension plans

Prof Eduard Ponds (1958) holds the chair of Economics of Collective Pension Plans at Tilburg University in the Netherlands. He is expert in economics of pensions and collective pension plans, in particular in the fields of pension funds, pension plan (re)design, risk management, actuarial aspects, intergenerational risk sharing, and classic and value-based ALM. His publications are mainly on collective pensions, in particular related to the pension fund sector in the Netherlands and elsewhere.
Eduard Ponds is also employed at APG ( Since 1995 he was subsequently actuary, senior researcher investments, manager pension fund strategy and currently he is head research collective pensions.


WHEN / AS all finance risks and costs of public sector pension plans ultimately have
to be borne by the tax payers, the optimal degree of funding reduces to the question what the optimal risk profile of tax payers is. The level of funding of public sector pension plans is a channel by which (additional) capital market risk becomes part of the risk exposure of tax payers. Risk averse tax payers then have to make a choice in the tradeoff between the additional expected return of funding compared to pay-as-you-go financing versus the additional risk of funding. A social planner decides on the optimal degree of funding of next period public sector pensions, by taking into account the relative attractiveness of funding vis-à-vis payg, the weights of current and future generations of taxpayers, and the actual state of the economy which determines the size of disposable private sector income and so the room to prefund next future pension payments. The preferred degree of funding appears to be endogenous over time, depending on the actual state of the economy (and so on the realized wage income and return on investments both determining the disposable private sector income) and depending on the expected state (and so on the prospects on wages and capital market return and their riskiness).

Hilary Salt

Hilary Salt is a Founder of First Actuarial LLP where she runs the Manchester office.

Hilary’s client work covers traditional actuarial consultancy including acting as a scheme actuary, advising trustees and employers on their defined benefit schemes in the current, often difficult, pensions climate. She also works extensively with trade unions where she assists in collective bargaining situations and advises on the pension schemes run by trade unions themselves. She also acts as the independent actuary to the Governance Group of the NHS Pension Scheme.

She has written a number of published articles and is a regular speaker at conferences.

Hilary has two sons and a season ticket to Old Trafford.

Samuel Sender
Managing Sponsor Risk in Pension Plans: Dynamic Strategies vs. Pension Assurance

Samuel Sender is research manager at EDHEC-Risk Institute and an executive PhD in Finance candidate. His academic research focuses on pension fund risk management and on the econometrics of financial markets. His applied research with EDHEC focuses on the interaction of regulation and risk management; it is sponsored by industry groups and has been widely featured in academic and practitioner journals and in the financial press. Samuel holds a degree in statistics and economics from ENSAE (Ecole Nationale de la Statistique et de l'Administration Economique) in Paris and has served as economist, strategist, head of ALM, and ALM consultant for large financial groups.


Defined-benefit (DB) pension funds, often underfunded, rely on the legal obligation of their sponsor to secure pension rights. This paper firsts in identifying the optimal pension funds portfolio, while considering the risk on the sponsor's guarantee. Limitations to the capacity to hedge sponsor risk due to the size and liquidity of the sponsor's shares and to the fund's leverage constraints must be taken into account at inception. Non-contractible pension plans are Third-Best, but Pension Indemnity Assurance, a non-redundant asset and contract, reduces the risk-shifting incentives from each party to the pension contract (fund and sponsor). This fully mitigates sponsor risk.