Choices in Pension Management

The organization of pensions differs greatly across, and within, countries, and these differences affect the large number of stakeholders differently. The choices that underlie these differences tend to be very complicated, as they have to be balanced over the interests of different stakeholders over time.

The first two studies of this doctoral thesis analyse heterogeneity in pension plan risk preferences. Using an augmented risk preferences elicitation method, we find strong heterogeneity in latent risk preferences. Together with institutional differences these affect the optimal asset allocation. Therefore, it is worthwhile to elicit risk preferences.

The third study focuses on pension fund administration and investment costs. We show that there are large economies of scale for pension fund administrations, and modest diseconomies of scale for investment activities. Many pension funds have substantial X-inefficiencies for both administrative and investment activities. The study suggests that consolidation of pension funds may be efficiency enhancing.

The fourth study investigates pension fund discontinuity events. The occurrence and impact of these events is strongly dependent on the institutional setting of pensions. Stricter regulations increase the financial stability of the pension fund, but may reduce membership support through lower replacement rates. This trade-off influences the management of pension funds.

Taken together, this dissertation scrutinizes the complexity of choices in pension organization. Choices in pensions depend on the particular institutional setting of pensions and on specific pension plan member characteristics. These choices affect a great many stakeholders of pensions through different channels, both directly and indirectly.