A comparison of catching-up premium rate models

The total pension premium rate consists of two components, the contribution rate and the catching-up premium rate. The contribution rate finances the accrual of pension rights while the catching-up premium finances (possible) wealth deficits of a pension fund. The contribution rate and the catching-up premium rate have a different effect on the economy. The models are different in that the PA model is a solution to a static optimisation problem, while the optimisation problem in the LQR model is dynamic. With respect to the economic principle of premium smoothing, it turns out that the LQR model is the preferable model. In addition, the simulation outcomes of this model are more consistent with the institutions of the Dutch pension system.

Measuring lifetime redistribution in Dutch occupational pensions

This paper quantifies lifetime redistribution in Dutch occupational pension schemes associated with uniform pricing. Information about the extent of redistribution is important because it will influence the public acceptance of the pension system. The uniform contribution rate is split up into a saving share and a transfer share for different socioeconomic groups. The transfer share, in turn, consists of intergenerational and intragenerational transfers. We find that the relative size of the saving- and transfer shares strongly depends on socioeconomic characteristics, such as gender and level of education. The saving part is higher for females than for males and it increases with the level of education, which implies that uniform pricing involves a large transfer from males to females and from low educated to higher educated workers. The impact of intergenerational transfers is modest.

Intergenerational risk sharing and labour supply in collective funded pension schemes with defined benefits

Collective funded pension schemes with defined benefits (DB) raise welfare through intergenerational risk sharing, but may lower welfare through distortion of the labour-leisure decision. This paper compares the welfare gains with the welfare losses. In many countries, collective funded pension schemes with defined benefits (DB) are being replaced by individual schemes with defined contributions. Collective funded DB pensions may indeed reduce social welfare when the schemes feature income-related contributions that distort the labour-leisure decision. However, these schemes also share risks between generations and�add to welfare if these risks cannot be traded on capital markets. Do�the�gains outweigh the losses? For answering this question, we adopt a two-period overlapping-generations model for a small open economy with risky returns to equity holdings. We derive analytically that the gains dominate the losses for the case of Cobb-Douglas preferences between labour and leisure. Numerical simulations for the more general CES case confirm these findings, which also withstand a number of other model modifications (like the introduction of a short-sale constraint for households and the inclusion of a labour income tax). These results suggest that collective funded schemes with well-organized risk sharing are preferable over individual schemes, even if labour market distortions are taken into account.

Retirement Flexibility and Portfolio Choice

This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model. We analyse this interaction both in a partial-equilibrium and general-equilibrium setting. Retirement flexibility is often seen as a hedge against capital-market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement fl exibility is weakened - and under some conditions even turned around - if not only capital-market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general-equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure.retirement (in)fl exibility;portfolio allocation;risk;intratemporal substitution elasticity

A leading indicator for the Dutch economy; methodological and empirical revision of the CPB system

Since 1990, CPB Netherlands Bureau for Economic Policy Analysis (CPB) has used a leading indicator in preparing short-term forecasts for the Dutch economy. This paper describes some recent methodological innovations as well as the current structure and empirical results of the revised CPB leading indicator. Special attention has been paid to the role and significance of IFO data. The structure of the CPB leading indicator is tailored to its use as a supplement to model-based projections, and thus has a unique character in several respects. The system of the CPB leading indicator is composed of ten separate composite indicators, seven for expenditure categories (‘demand’) and three for the main production sectors (‘supply’). This system approach has important advantages over the usual structure, in which the basis series are directly linked to a single reference series. The revised system, which uses 25 different basic series, performs quite well in describing the economic cycle of the GDP, in indicating the upturns and downturns, and in telling the story behind the business cycle.

Retirement Flexibility and Portfolio Choice

This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model. We analyse this interaction both in a partial-equilibrium and general-equilibrium setting. Retirement flexibility is often seen as a hedge against capital-market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement flexibility is weakened� and under some conditions even turned around, if not only capital-market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general-equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure. Key words: retirement (in) flexibility, portfolio allocation, risk, intratemporal substitution elasticity JEL codes: E21, G11, J26 �

A small stochastic model of a pension fund with endogenous saving

We live in an uncertain world, yet a lot of research into the sustainability of welfare states is done in the context of certainty. There are good reasons why the analysis is mostly confined to a model of a certain world. A full analysis of the sustainability of welfare states which includes all relevant economic interactions is already intricate in a certain world because it requires the use of complex dynamic general equilibrium models. Even without stochastics, understanding all the mechanisms and its results is sometimes difficult. In addition, when building stochastics into these type of models one may run into the limitations of computer capacity. In this paper we investigate whether uncertainty on the real rate of return on capital and productivity growth (labelled as economic uncertainty) is more or less important than mortality and fertility uncertainty (labelled as demographic uncertainty) for a consumer facing a decision how much to save. Furthermore we look at the errors that are made when uncertainty is neglected in consumer behaviour. The results indicate that economic uncertainty is far more important than demographic uncertainty. The welfare costs of neglecting uncertainty in consumer behaviour seem to be small.

A Leading Indicator for the Dutch Economy – Methodological and Empirical Revision of the CPB System

Since 1990 the Netherlands Bureau for Economic Policy Analysis (CPB) uses a leading indicator in preparing short-term forecasts for the Dutch economy. This paper describes some recent methodological innovations as well as the current structure and empirical results of the revised CPB leading indicator. Special attention is paid to the role and significance of IFO data. The structure of the CPB leading indicator is tailored to its use as a supplement to model-based projections, and thus has a unique character in several respects. The system of the CPB leading indicator is composed of ten separate composite indicators, seven for expenditure categories (‘demand’) and three for the main production sectors (‘supply’). This system approach has important advantages over the usual structure, in which the basis series are directly linked to a single reference series. The revised system, which uses 25 different basic series, performs quite well in describing the economic cycle of GDP, in indicating the upturns and downturns, and in telling the story behind the business cycle.leading indicator, short-term forecasts