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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
2000-2010
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Aiming at high equity returns; More risk
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Fair Value accounting: More volatility
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Confidence Levels (CL):
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CLs from 'not defined' to 97.5%
(Netherlands)
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Higher (99.5%) CLs needed but denied !!
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CL 97.5% Return > ≈ 6,5%
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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!!