Session: 88

Pensions

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Summary

An overview of the major factors contributing to the risks undertaken by employers which offer employee pension plans. The main risks are in the areas of asset allocation policy, benefit design and longevity. They materialise in terms of funding and expensing uncertainties. The paper leads to some proposals for benefit design where the objective is to ensure a reasonable degree of risk-sharing between employers and employees and an efficient system of employer pension provision. The way to achieve this objective is to establish a framework in which employers, acting on behalf of shareholders, have a significant degree of control over the degree of pension risk which they will bear. A way of measuring risk-sharing is shown by reference to the principles of option pricing.

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