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Pension Fund Smoke and Mirrors

How it started...

1980-2000

Interest rates > 4%

Average Return Rates > 4%

(Return – 4%) Indexation
Pension Fund Smoke and Mirrors
How it started...

1980-2000

LT Return expectation > 4%

High Return Assumptions

High Indexation Capacity

No volatility awareness..

No Confidence levels defined

Sunny outlook
Pension Fund Smoke and Mirrors
How it developed... The Longevity Tsunami

2000-2010

Future Longevity still >20% underestimated

1 year life span increase ≈ 5% Liability Increase

New medical & genetic


developments coming up
Pension Fund Smoke and Mirrors
Aiming at higher returns.. More equities...
More risk...

2000-2010

Aiming at high equity returns; More risk

Fair Value accounting: More volatility

Confidence Levels (CL):

CLs from 'not defined' to 97.5%
(Netherlands)

Higher (99.5%) CLs needed but denied !!

CL 97.5% Return > ≈ 6,5%

CL 99.5% Return > ≈ 9.5%
Pension Fund Smoke and Mirrors
More risk... Higher Confidence Levels...
Unrealistic Returns...

2010

Relatively low interest rates

Underperforming stock market

Underestimated longevity risks

Need for higher CLs (99,9%)

CLs urge for 'Unrealistic Returns' : Crisis!!

Pensions gone up in smoke....