Risk Sharing - Constructing sustainable pensions

This paper presents a three step plan to arrive at a long-term sustainable risk sharing pension system. The approach aims at economically balancing the interests of all stakeholders - actives, retirees, employers - and thus contrasts sharply with the current DB and collective DC systems

The defined benefit (DB) pension system in Northern Europe is in a serious state of flux. The pension funds are maturing and their balance sheet sizes often equal, if not dwarf, the capitalisation of the sponsor. This, in combination with changing accounting rules, has started a trend, especially in the UK, towards individual pension schemes. To a certain extent this is an undesirable development since it is generally agreed that individuals lack the knowledge to implement life-cycle related